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RBC Economics says higher interest rates will put a strain on the Canadian housing market in 2015 and substantially moderate prices increases.

In its latest Canadian housing forecast, the bank says Canada’s current historically low interest rates are not sustainable and it forecasts longer-term interest rates will rise by the end of the year in anticipation of a return to tightening mode by the Bank of Canada in 2015.

Read: 17% of Toronto, Vancouver condos are investor-owned: CMHC

RBC says if current rates rise, it anticipates home resales to fall by 0.9% to 463,100 units next year following an increase of 2.1% to 467,200 units in 2014, while it sees home prices increasing just 1.1% in 2015, compared with a jump of 4.3% this year.

RBC describes those developments as a cooling–not a crash–in the housing market, which is supported by a variety of other factors, including steady immigration rates and good employment outlook.

Read: Housing starts climb

The report said condo construction, particularly in the major cities, will be one of the main reasons the housing market will slow in 2015 as more units become available.

It cautioned that although there will be slowdown in 2015, the big impact on the Canadian housing market will be likely not be seen until 2016 once higher interest rates are normalized.

Read: Don’t fear housing bubble, says report

Originally published on Advisor.ca

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