BUSINESS

CREA says home prices, sales activity to be stronger than previously forecast

06/15/2012 04:00 EDT | Updated 08/14/2012 05:12 EDT
TORONTO - The Canadian Real Estate Association said Friday that 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 per cent from 2011, compared with earlier expectations of a gain of 0.3 per cent.

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

"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 home ownership 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 per cent from this year, compared with the earlier forecast of 457,200.

The more bullish outlook for the year came as CREA reported home sales last month fell 3.1 per cent compared with April, but remained up from a year ago.

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

CREA chief economist Gregory Klump said activity in the Greater Toronto Area is stronger this spring than it was a year earlier and higher-priced homes are still selling quickly.

"As Canada's most active housing market, and one of the priciest, it is still the biggest factor boosting the national average price, but its support was less of a factor in May," he said.

Calgary is also buoying the national average price, where sales and average selling prices are up from last year.

"Overall price growth remains modest amid balanced market conditions in much of the rest of Canada," he said.

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

Homebuyers seem to be heeding those warnings, Bank of Montreal economist Robert Kavcic wrote in a report Friday.

"Overall, most indications point to a balanced and well-behaved housing market that has clearly mellowed," he wrote in a report.

A report released this week by TD Bank projected Vancouver and Toronto home prices would probably experience a downturn of about 15 per cent in two to three years, but not the dramatic drop that hit the U.S. housing market a few years ago.

The CREA release continues to point to the Vancouver and Toronto markets heading in opposite directions, TD senior economist Sonya Gulati wrote Friday.

"We expect recent out-sized gains in Toronto to wane slightly in the second half of the year. By contrast, Vancouver ought to record a better second half," Gulati said.

"Looking beyond the near-term, underlying fundamentals lead us to believe that a 15 per cent price adjustment in both markets is in store."

Despite the fact that both prices and sales were in the red in May, TD continues to expect prices and sales should be up around 1.5 to three per cent in 2012.