Making money in real estate wasn’t hard for many Canadians in 2006.

In Alberta, an economic boom drove house prices through their heavily insulated roofs, while the rest of the country saw average house prices rise in the double digits, according to realtor Royal LePage.

But as a new year dawns, investors and homeowners are questioning if there are enough solid foundations in place to support more gains. Already, slower growth in residential sales in Ontario, Quebec and the Atlantic provinces lowered third-quarter profit for Royal LePage Franchise Services Fund, and that’s with the added benefit of the boost the came from record royalty revenues.

Already, pent-up demand for housing in Canada is diminishing even in some of the hottest markets such as Calgary, said Bob Dugan, chief economist at the Canada Mortgage and Housing Corp., Canada’s national housing agency.

“Growth in prices is starting to slow, and demand in these markets is less than it has been,” he said.

But while resale home price increases are expected to register only about 3.1 per cent for both Ontario and Quebec in 2007, Alberta will still ring up a 12.6-per-cent increase over the whopping 29.4-per-cent the rpovince saw this year, Mr. Dugan said.

Markets have matured in Ontario, Quebec and the eastern provinces, and Canada’s economy will feel the pain as manufacturers and exporters feel the pinch from a slower U.S. economy and a higher Canadian dollar, some economists say.

That all feeds concerns over demand for new and resale homes in Canada.

The number of new houses starting construction will probably decline to 210,900 in 2007 from about 227,900 this year, Mr. Dugan said. Even so, that number of new homes is still higher than the estimated 185,000 new households formed in Canada annually, he adds. As for resale homes, a streak of five straight years of record-setting prices came to an end last year, and will drop for this year and next, he said. The bright spot for 2007, he said, will be found in the west, where workers are still flocking from all other areas of the country. “Definitely Alberta and B.C. were the two markets that pushed price pressures in Canada higher in 2006,” he said. “The story continues to be people moving from central and east towards the west.”

But even this champion has its limits, Mr. Dugan said.

“As we go forward we do expect that to decrease. It’s going to be harder and harder for Alberta to attract workers,” he added. “We don’t expect to see the same MLS levels as we did in 2006, simply because there won’t be the same number of people moving.”

As for British Columbia, the CMHC is calling for a more balanced market. The organization is predicting resale price appreciation slowing to 7.7 per cent in 2007, down from 17.2 per cent this year and 14.9 per cent in 2005.

Canadians shouldn’t be too hung up over the U.S. housing market fallout, said Rossa O’Reilly, managing director of institutional equity research, and investment analyst for the real-estate sector at CIBC World Markets.

“We never had the run-up they had in the U.S.,” he explains. “We didn’t have the incredible lending policies that they had south of the border” such as a proliferation of zero-money-down house purchases.

Canada’s interest rates are expected to stay steady through 2007, after the Bank of Canada kept its benchmark rate unchanged for a fourth-straight rate policy meeting, hinting that further changes are unnecessary because of “balanced” risks to the economy.

The target rate for overnight loans is 4.25 per cent, at its highest level since August 2001, but still a full point less than the comparable U.S. Federal Reserve’s target.

Canada’s target rate will likely remain unchanged at that level for a while, until a cut in the third quarter of next year, according to a collection of analysts surveyed by Bloomberg.

The CMHC predicts the fixed posted mortgage rate will go down to 6.4 per cent in the second quarter of 2007, before climbing in the final quarter.

Predictions are made based on the five-year, fixed-term mortgage because about half of all mortgages across the country have a five-year, fixed-rate term.

“We’re now facing 2007 with lower rates, and that brings down carrying costs” and helps keep up the pace of sales, Mr. Dugan said. Even so, with the price appreciation seen in Canadian housing in recent years, the cost gap between owning and renting is getting larger. That bodes well for landlords, he notes, but perhaps not quite as well for renters or others looking to buy.

He predicts a national rental vacancy rate of 2.7 per cent for this fiscal year, and expects that figure to edge slightly higher in 2007.

Theresa Ebden is an associate producer for Report on Business Television.