Canada’s housing market stronger than forecast

The Canadian Press

TORONTO — The Canadian Real Estate Association said Friday that the national home price and sales activity this year will be higher than previously forecast, following a strong spring.

It now forecasts 475,800 homes will be sold in 2012, up 3.8% from 2011, compared with earlier expectations of a gain of 0.3%.

The average home price is forecast to rise by 2.2% to $370,700 in 2012 compared with an earlier expectation that it would fall 1.1%.

“National activity over spring months was stronger than anticipated,” CREA president Wayne Moen said in a statement.

“This shows clearly how the continuation of low interest rates is keeping homeownership affordable and within reach.”

CREA had previously forecast 2012 and 2013 sales volume would be on par with the 10-year average, but it now expects them to be slightly above that.

CREA expects 470,200 sales in 2013, down 1.1% from this year, compared with the earlier forecast of 457,200.

The increased outlook for the year came as CREA reported homes sales last month fell 3.1% compared with April, but remained up from a year ago.

The group said sales volume rose 9% from May 2011, while the Canadian average price slipped marginally to $375,605, down 0.3%.

Continued overall strength in the housing market, largely due to the staying power of low interest rates, has led some economists to warn the market is overvalued.

That could make homeowners vulnerable to a downturn, especially those who have used low interest rates to borrow more than they could otherwise afford.

The Bank of Canada and federal Finance Minister Jim Flaherty have cautioned Canadians repeatedly to moderate borrowing on real estate, declaring household debt to be the domestic economy’s number one enemy.

The bank noted certain segments of the housing market that have a persistent oversupply — such as condos in Toronto — face a higher risk of a price correction.

A report released this week by TD Bank projected Vancouver and Toronto home prices will probably experience a downturn of about 15% in two to three years, but not the dramatic drop that hit the United States a few years ago.