The Canadian economic landscape of early 2010 included pent-up housing demand from the Great Recession, a rebound in consumer confidence, record low interest rates, impending mortgage qualification changes, and looming HST for two Canadian provinces. It created a prescription that seemed to put the Canadian spring housing market on steroids. Unfortunately nothing good can last forever and the conditions that led to such a strong housing rally early in 2010 also pulled-forward sales and created a less exuberant market as the year progressed — with 60 percent of the 2010 activity taking place in the first half of the year.

As the 2010 calendar continued to flip pages, attention became more focussed on high-levels of consumer debt, and the possibility of a housing bubble in Canada. The overheated spring market generated speculation on whether or not a foreclosure crisis, similar to south of the border, could be a possibility in Canada. By the time the housing market crossed the 2010 finish line, home prices did appreciate for the year, and Canada’s housing market made the podium as one of the best performers among advanced countries. New housing starts in Canada should finish up around 192,000 units for 2010.

Now, fast-forward to 2011 and the economic setting continues to include historically low interest rates. However, rate increases are looming for the second half of the year and into 2012. Although this low-rate environment bodes well for sales activity early in the year, “the first half of 2010 is going to cast a long shadow over 2011, making it difficult for sales in the first half of 2011 to outpace year-on-year comparisons,” notes Gregory Klump, chief economist at Canadian Real Estate Association. That being said, most forecasts are still indicating modest price increases — in the range of 2 to 3 percent — across the country in 2011, but somewhat flatter sales activity. New housing start forecasts are ranging from 170,000 to 180,000 — in line with Canada’s underlying level of demographic household formation, which suggests a need for 175,000 starts. While this may not be the pinnacle of performance that the housing market in Canada has reached in the past, it would still be a healthy, yet somewhat dull year.

But just when adjectives such as boring, lackluster, and mediocre enter the housing forecasts, there are another cast of players highlighting all of the uncertainties that may challenge performance. A recent report released by the International Monetary Fund said that Canada’s overheated housing market combined with record levels of consumer debt are risks that could curtail future economic growth. In addition, employment and income growth is expected to moderate in 2011 as governments reign in public sector hiring — which accounted for one-third of the net new jobs in 2010 — to begin unwinding the stimulative fiscal policies put in place to defend against the economic downturn. Mix in the continued global economic uncertainties due to the financial strains facing debt-heavy developed nations, flagging consumer confidence, and the stress that increasing home prices place on affordability, and boring performance for 2011 might not be so bad after all.

Tell us what you see for the Canadian housing market in your crystal ball.