September 15, 2014 / 2:38 PM / 3 years ago

UPDATE 1-Canadian home sales surge in August, to peak in Q3 -CREA

3 Min Read

(Adds forecast, economist's comment, inventory details)

By Andrea Hopkins

TORONTO, Sept 15 (Reuters) - Sales of existing homes in Canada rose in August from July, hitting the highest level since January 2010, the Canadian Real Estate Association (CREA) said on Monday, but it predicted sales will peak in the third quarter and decline in 2015.

The industry group for Canadian real estate agents said sales were up 1.8 percent last month from July. Actual sales for August, not seasonally adjusted, were up 2.1 percent from August 2013.

CREA's home price index rose 5.3 percent from August 2013, matching July's year-over-year gain. The national average price for homes sold in August, not seasonally adjusted, was C$398,618 ($360,023), up 5.3 percent from the same month last year.

"Sales activity in recent months has remained stronger than was anticipated earlier this year," Gregory Klump, CREA's chief economist, said in the report.

Klump said sales bounced back after a slump early in the year that resulted from a harsh winter, a trend bolstered by a decline in mortgage rates.

The persistent sales strength has put renewed focus on concerns that Canadian households are over-reaching to get into the market and on fears of a housing bubble.

"At its last interest rate announcement, the Bank of Canada noted that conditions in the housing market were stronger-than-expected and that household imbalances were no longer evolving in a constructive manner," David Tulk, chief Canada macro strategist at TD Securities, said in a research note. "Amid low mortgage rates, this report suggests that the renewed focus on all things housing is warranted."

In a separate report, CREA raised its forecast for sales of existing homes in 2014 to 475,000, a 3.8 percent increase from 2013. In its June report, CREA had forecast sales of 463,400, a 1.2 percent increase from 2013.

But it said it expects sales to peak in the third quarter of 2014 as the impact of purchases deferred because of harsh weather earlier in the year dissipates, while high prices erode affordability.

CREA forecast sales of 473,100 in 2015, a decline of 0.4 percent from this year.

Canada escaped the housing crash that hit the United States after the 2008-09 financial crisis and home prices have risen dramatically, if not steadily, in the past five years despite federal government moves to tighten mortgage lending rules.

While some economists have predicted the Canadian market will crash, most have said they expect sales and new construction to level off in 2014 and 2015 as mortgage rates rise, with prices continuing to tick slowly higher.

CREA projects the average home price will rise by 5.9 percent to C$405,000 in 2014 and then edge up 0.7 percent in 2015 to C$407,900.

It said its national sales-to-new-listings ratio was 55.5 percent in August, while months of inventory shrank to 5.8, still in balanced territory but indicating the market has tightened slightly.

$1=$1.11 Canadian Editing by W Simon; and Peter Galloway

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