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CREA revises forecast saying existing home sales will fall in 2010 and 2011 PDF Print E-mail
Written by HGO Staff   

OTTAWA (05 November 2010) - The Canadian Real Estate Association (CREA) has and lowered its 2010 and 2011 forecasts for existing home sales, attributing the reversal to a lacklustre economic environment, muted consumer confidence and anticipated interest rate hikes next year.

The realtors' group said that sales activity for the third quarter of 2010 began on a ‘weak footing' and although the market gained some traction, weaker than expected sales forced CREA to reduce its forecast.

National sales activity through its Multiple Listing Service (MLS) is now expected to fall 4.9% year-over-year to 442,200 units in 2010. CREA noted that while monthly sales levels are stabilizing, year-over-year comparisons are likely to remain stretched well into 2011 due to the record-level activity reported in late 2009 and early 2010.

Because of the economic environment, CREA now believes existing home sales will decline 9.0% to 402,500 units in 2011.

In a revised forecast issued this past July, CREA anticipated sales would fall 1.2% in 2010 to 459,600 units and by an addition 7.3% in 2011 to 426,100 units.

"Interest rates are expected to resume their return to more normal levels next year, but will still be at levels that are friendly to the housing market," CREA president Georges Pahud said in a statement, adding that 2011 will mark will mark the tenth consecutive year in which housing re-sales have exceeded the 400,000 mark.

He noted that despite the recent volatility in both sales and new listings, their movements have remained in synch which has kept the resale housing market balanced since early 2010. The overall supply of homes for sale has also been trending lower in recent months which have resulted in stable average price trends.

The national average home price is now forecast to rise 3.1% in 2010 to $330,200, with increases in all provinces. The small revision from the previously forecast $331,600 reflects a balance between supply and demand.

Modest average price gains are forecast in 2011 in all provinces except British Columbia, Alberta, and Ontario. Lower sales activity in British Columbia and Ontario are expected to result in a 1.3% decline in the national average price to $326,000.

"Housing demand and supply is stabilizing," CREA chief economist Gregory Klump said. "That's good news for home buyers, who will feel less hurried to make an offer than they did when transitory factors ignited housing demand in early 2010. It's also good news for home sellers, who will feel more confident about price stability now that the housing market has become balanced."

Klump also said that interest rates should remain low for some time yet thanks to a downward revision by the Bank of Canada to its outlook on economic growth and inflation. This means consumer confidence will remain under pressure until the economy improves meaningfully.

"In the meantime, many households will be focused on paying down their debts before the Bank of Canada resumes hiking interest rates next year," Klump added. "Economic uncertainty is likely to keep potential homebuyers in a cautious mood, so the continuation of low and stable interest rates is unlikely to cause housing demand or prices to swell."

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