The Canadian Real Estate Association slashed its home-sales forecast Friday, saying activity will decline this year and next.
National sales activity is now expected to fall 4.9 per cent this year and sales will tumble another 9 per cent next year. Prices, however, are expected to hold up better - ending this year 3.1 per cent higher than they started before falling 1.3 per cent next year.
Lackluster economic and job growth, muted consumer confidence, and the resumption of interest rate hikes next year are the main reasons behind the lower sales forecast. Private sector forecasts vary for next year, with some banks expecting prices to fall as much as 10 per cent in the next year.
September sales data from the national association showed the average national sales price at $331,089, which means CREA believes prices will continue to fall for the rest of the year. Prices peaked in May, when they hit $346,881.
While sales are expected to cool, the number of listings is also expected to remain muted - keeping prices stable.
"Housing demand and supply is stabilizing," said Gregory Klump, CREA's chief economist. "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."
The organization said interest rates will move higher next year, but that they shouldn't rise enough to keep people out of the market.
"Many households will be focused on paying down their debts before the Bank of Canada resumes hiking interest rates next year," said Mr. Klump. "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."
The organization next releases sales data for October on Nov. 15. The Toronto Real Estate Board released its October numbers Thursday, showing a 20 per cent drop in sales compared to a year ago. Sales were 36 per cent lower in Vancouver, its board said in Wednesday.
CREA said much of the national decline in the next year will be driven by lower demand in Ontario and British Columbia.
The Toronto board optimistically said prices have held steady because real estate in the city has "remained affordable" at an average $443,729 in October.
"The average selling price in the GTA has continued to grow relative to 2009 because home ownership has remained affordable," said Jason Mercer, the Toronto Real Estate Board's senior manager of market analysis. "A household earning the average income in the GTA can comfortably afford the mortgage payments associated with the purchase of an average priced home."
The Bank of Canada doesn't share the board's optimism. Governor Mark Carney has warned that Canadian household debt is too high.
Speaking to the House of Commons finance committee last week, Mr. Carney said the slowdown in housing is unfolding as the central bank expected it would, given the tighter mortgage rules brought in by the Finance Department earlier this year and the fact more Canadians are retrenching after spending and borrowing with abandon amid record-low interest rates.
Still, he warned, a quicker drop is possible. That would almost certainly mean Canada would see slower economic growth than Mr. Carney's latest forecasts, which included downgrades for five consecutive quarters.
"One of the important downside risks to our projection is the possibility that there is a more abrupt correction in the housing market than we're anticipating," Mr. Carney told lawmakers. "We're not forecasting an abrupt correction, but it is a possibility, given two factors: the speed with which house prices rose and, secondly, the absolute weight of debt in the economy that is tied to housing."