Greater Victoria's real estate market is forecast to deliver a "silver-medal performance" this year and slow further in 2011 as interest rates rise and demand ebbs.

These predictions follow a surge in sales in the latter part of 2009, when buyers raced back into the housing market after the recession scared them away.

"B.C. MLS [multiple listing service] sales sprinted from an annualized rate of 50,000 units during the first quarter to 112,000 during the fourth quarter last year," Cameron Muir, B.C. Real Estate Association chief economist, said yesterday.

"That gold-medal finish will give way to a silver-medal performance in 2010.

Relatively slow economic growth, waning demand and higher carrying costs for a home will combine to moderate the recently frenetic pace of home sales in B.C., Muir said from Vancouver.

"Home prices in Victoria have come back to their previous peaks and there continues to be some upward pressure on home prices. So as mortgage interest rates begin to rise, the erosion in affordability is going to have a limiting impact on the level of home sales in Victoria, both this year and next year."

Muir figures that by the end of this year, the five-year mortgage rate will be about six and a quarter per cent, climbing to just under seven per cent in 2011.

"That's going to have an impact on overall demand."

In Greater Victoria, average house prices are forecast to rise by eight per cent to $515,000 this year from $479,137 in 2009. The rate of increase will drop to two per cent, to $525,000 in 2011, the association's housing forecast said.

Individual capital region house sale numbers are also predicted to go up, by three per cent this year to 7,850, from 7,660 in 2009. (The Victoria Real Estate Board's end-of-year sales numbers show higher sales numbers because a wider category of properties is included.)

But in 2011, the B.C. association predicts, the overall number of Victoria sales will slide by six per cent to 7,350, despite higher expected B.C. housing starts this year and next.

The average home price on Vancouver Island north of the Malahat is predicted to move to $322,000, up two per cent, this year, from $316,118 last year. And 2011 will bring another two per cent boost, to $329,000, the association said.

Sales numbers for the Island are expected to grow by 11 per cent this year to 8,050, from 7,280 in 2009. Next year, sales are predicted to skid by four per cent to 7,700.

Total B.C. sales are expected to move up by six per cent this year to 90,100, from 85,028 in 2009, but drop to 87,500 in 2011.

Average prices throughout the province will likely increase by five per cent to $490,900 this year, and then rise another one per cent to $494,800 in 2011.

"Most of the increase will likely occur by the end of the first quarter this year," Muir said. "Home prices are expected to experience relatively less upward pressure as the year unfolds."

Victoria, along with Vancouver and the Fraser Valley, will move to a balanced market this year from a sellers' market, he said.

Housing starts are also forecast to climb after strong demand in recent months, he said. This year, B.C.'s starts are predicted to rise by 39 per cent to 22,400, and again by 18 per cent to 26,500 in 2011. Those numbers are below the 34,000-plus seen in 2008, but that year saw a red-hot real-estate market when sales and construction spiked.

B.C.'s real-estate market has been largely driven by first-time buyers, who jumped in because of historically low interest rates, Muir said. In 2008, 35 per cent of condominium sales in the capital region were for prices below $275,000, reflecting a product appealing to first-time buyers.

cjwilson@tc.canwest.com

On the web: www.bcrea.bc.ca