Canadian home sales forcast lifted

Even as the U.S. housing market continues to unravel, record home buying activity in Canada has prompted even higher sale targets and further projected price increases.

Sales of existing homes are expected to reach 523,100 units this year, an 8.1-per-cent increase over last year, the Canadian Real Estate Association said in a new residential forecast issued Monday. That is up from a previous target of 500,995 units and 3.6 per cent growth.

The CREA had already revised its sales growth target once this year, in May. Its original forecast, in February, predicted that sales would ease 1.6 per cent from 2006, pressured by higher prices and rising mortgage costs.

But instead of easing, second-quarter sales activity hit a record, prompting the sunnier outlook for the remainder of the year. “We had anticipated that the market would cool in the second quarter, but instead of cooling, it went further to a boil,” Gregory Klump, chief economist with the Ottawa-based group, said in an interview.

The strength in the housing market is no longer a Western Canadian story, Mr. Klump said, noting that second-quarter sales activity was brisk in Ontario and the Eastern provinces. “The thing that came in as a surprise is that sales were higher than what we had been anticipating in every province.”

Unit sales in 2007 are forecast to be strongest in Saskatchewan, surging 33.7 per cent from last year, and weakest in British Columbia, rising 4.6 per cent.

Not only are sales expected to set records in most provinces this year, prices are forecast to reach new highs in every province both this year and in 2008, although the pace of price increases will ease next year, the CREA said.

Nationally, the average price is seen rising 10.4 per cent to $305,900 this year and adding another 5.5 per cent to $322,700 in 2008. Price gains will be largest in Alberta, surging 24.6 per cent to $355,600 in 2007, and 6.6 per cent to $379,000 next year.

However, the resale market is still expected to ease in 2008, with national unit sales forecast to dip 2 per cent.

“The resale housing market will become more balanced as rising prices and higher mortgage interest rates gradually impact affordability,” Mr. Klump said. “Strong employment numbers will keep sales activity strong, even as prices and interest rates continue to rise.”

A vastly different scenario is unfolding in the United States, where the collapse of the subprime mortgage market has triggered a severe downturn in the housing market, leading to widespread fears about the overall health of the U.S. economy and triggering a global credit crunch which has rattled financial markets

(prepared by Roma Luciw/Globe & Mail)