Home sales across the country rose 2.2 per cent over 2010 to 457,000 units last year, according to data released Monday by the Canadian Real Estate Association.
That read is nearly a full percentage point higher than CREA had been anticipating in the fall when it projected a 1.4 per cent gain over 2010 to 453,300 homes.
However, the last few months of 2011 indicated a slowdown is on its way in the housing market, economists noted Monday.
The year was capped with a fourth consecutive monthly increase in December. Home resales were up 1.8 per cent from November and a relatively modest 4.6 per cent from December 2010.
“Momentum for national sales activity and average price remains positive but is slowing, which suggests that the continuation of low interest rates is not causing the Canadian housing market to overheat,” said Gregory Klump, CREA’s chief economist.
“With interest rates widely expected to remain low throughout 2012 homeownership will remain affordable and continue to support home sales activity,” Klump said.
Mortgage rates had been expected to rise in 2011, increasing the cost of home ownership and keeping house prices in check. That was supposed to lead to a slowdown in the housing market, according to the predictions of several top economists at the end of 2010.
However, turmoil in the global economy put pressure on the Bank of Canada to leave interest rates at ultra-low levels, which kept variable mortgage rates at bargain prices, while the wider economic woes also impacted bond rates,which kept fixed rate mortgages low.
As a result, consumers continued to borrow to buy homes and that demand helped keep home prices rising. Robust activity in the hot Vancouver and Toronto markets drove the increase in annual sales.
In December, the price increase on a national basis was relatively modest, up just 0.9 per cent compared with December 2010.
In Vancouver, sales fell 4.1 per cent, while prices were down two per cent in December. But in Toronto, sales were up 1.8 per cent, while prices fell 2.4 per cent from December 2010.
Meanwhile, CREA said the number of newly listed homes on its Multiple Listing Service increased three per cent from November to December, pushing more supply on to the market. But the national resale housing market remained in balanced territory, the association added.
December's read on the Canadian housing market, while in positive territory, was below the expectations of some analysts on both sales and prices.
However, BMO Capital Markets economist Robert Kavcic wrote in a report that the December numbers were likely to presage a cooling market.
"Looking ahead to 2012, cooler housing activity should prevail as elevated household debt levels, shaky confidence and a weakened job market counter extremely low mortgage rates," Kavcic said.
His colleague, Douglas Porter, deputy chief economist at BMO, noted that home prices were up 7.2 per cent in 2011, ahead of the four per cent rise in personal incomes. But that was skewed by a spike in high-end Vancouver homes and, excluding that market, prices were up a more modest 5.5 per cent, he said.
BMO expects both sales and prices to be largely flat this year, which would allow personal incomes to catch up to higher prices.
TD economist Francis Fong predicts the housing market is "going to be a bumpy ride" this year.
"Canada is not without its share of headwinds going forward," he said.
"The first half of this year will likely see housing activity pull back further from its current level alongside both global and domestic economic conditions, while the second half of the year is likely to see some improvement as those same factors improve."
Royal LePage Real Estate Services has predicted the price of homes in Canada will continue rising this year, but the hottest markets in Toronto and Vancouver will grow much more slowly than in 2011.
The country's largest real estate broker said low mortgage rates will continue underpinning housing demand despite the weakening economy.
The International Monetary Fund has suggested that Canadian homes on average are 10 per cent overpriced and warned it may be a factor that puts the country's economic recovery at risk.
The Bank of Canada has also repeatedly cautioned prospective buyers to guard against being lured by low mortgage costs because interest rates and therefore monthly payments, will eventually increase as the economy gets stronger.