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TORONTO (Reuters) - The Canadian residential housing sector is landing safely after a wild ride over the past three years, Toronto-Dominion Bank said in a report on Thursday.
Looking ahead, the economics unit of Canada's No. 2 bank said it expects improved home sales and a higher average price next year, largely because housing affordability will likely be extended as uncertainty lingers about the global economy.
"The most important development since our September forecast is that increases in borrowing rates foreseen three months ago by TD Economics and most forecasters have been delayed," said Pascal Gauthier, senior economist, at TD Bank.
The bank raised its annual home sales forecast for 2011 by 8 percent to 420,000 units, but that still stands lower than its 2010 forecast of about 455,000.
It also downgraded its 2012 forecast to 400,000 units from a previous view of 437,000.
The TD Bank report follows Tuesday's decision by the Bank of Canada to keep its key overnight interest rate at 1 percent, which set the stage for rates to stay on hold for some time. TD expects the central bank to start ratcheting up interest rates in the middle of next year.
Overall, the Canadian housing sector has avoided two extreme scenarios over the past three years when resale prices dropped sharply in 2008, then quickly rebounded as mortgage rates and lower prices supported the turnaround.
"Sidestepping both worst-case scenarios of a bubble and crash, the resale market appears to have landed safely, and somewhat earlier than we anticipated three months ago," said Gauthier.
Recent data has showed the housing market was moving toward more balanced conditions.
Separately, new home prices in Canada edged higher by 0.1 percent in October from September, for the third consecutive gain, according to Statistics Canada data released on Thursday.
The top contributors to the rise in the new housing price index were Toronto and Oshawa, Ontario, and Vancouver, British Columbia. Prices rose in eight of the 21 cities in the index, were unchanged in nine and edged down in four.
The index has been on a steady rise since July 2009 with only one monthly decline since then.
Analysts in a Reuters poll had forecast, on average, a 0.1 percent increase in the October index.
Compared with October 2009, prices were up 2.5 percent, easing slightly from a 2.7 percent year-over-year gain in September.
The housing-only component of the new housing price index rose 0.1 percent in the month, while the land-only component was flat.
Additional reporting by Louise Egan and Howaida Sorour in Ottawa; editing by Rob Wilson