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After three years of volatility, the Canadian housing market is settling into a more moderate pace of activity.

An RBC report on the Canadian home resale market says home prices will increase by 4.4 per cent this year before they flatten to 0.4-per-cent growth for 2012. Home resales are expected to increase by 0.9 per cent this year and remain unchanged next year.

"Our view is that less turbulent economic and policy environments will support a smoother process going forward," the RBC report says. "The main policy shift will be one toward progressively higher interest rates, which will cool demand but not deep-freeze it."

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Since 2008, the housing market has experienced a lot of volatility due to the global financial crisis and domestic policy changes, including stricter mortgage lending rules and the introduction of the HST in Ontario and British Columbia.

Canadian property values have roughly doubled in the past decade and rebounded quickly to new record-high levels following the 2008 market downturn. In the United States, by contrast, housing prices have still not recovered.

The Alberta resale housing market is expected to post the strongest gains this year with 7-per-cent growth, a partial recovery from the 13.6-per-cent decline it suffered in 2010. The other Prairie provinces will average 4.5-per-cent growth this year, the report says. Alberta and Saskatchewan will see modest increases in real estate prices (0.5 per cent and 2.1 per cent, respectively) for 2012.

For all other provincial markets, price gains next year are forecasted to be at their weakest during a time of economic expansion since the mid- to late-1990s.

"In the case of British Columbia, we expect that extremely poor affordability will cause a partial reversal of the recent substantial gains and forecast an absolute decline of 1.6% (on an annual basis) in 2012," the report says.

"The perplexing developments in the B.C. market in the past several months -- whereby home prices have surged in segments of the Vancouver-area market despite slower resales -- are expected to be partly reversed in the coming year, making British Columbia the only province experiencing a price decline (on an annual basis) in our forecast for 2012," the report says.

Resale activity in Ontario and the Atlantic provinces is expected to be flat this year and weaker next year.

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Report on Business Community Editor

Dianne Nice is community editor for Report on Business and writes about social media. Previously, she was The Globe's online editor for Careers and Personal Finance and has written about these topics for Report on Business and Globe Investor. More

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