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TORONTO (Reuters) - Canada's housing market is poised for a "moderate correction" over the next two years, with prices and resales due to slow because of subdued household income growth and rising interest rates, according to a report by economists at Toronto-Dominion Bank.
As well, fewer first-time home buyers are expected to enter the market, while stiffer rules for insured mortgages, implemented earlier this year, combine to be the "chief culprits" behind the housing market slowdown.
"Still, the key drivers of housing demand will remain supportive over the rest of the year, but will become less favorable over 2012-13," said economists Derek Burleton and Sonya Gulati, co-authors of the housing report.
The housing sector has long been a source of support for the Canadian economy, helping draw it out of the recession, while other global economies have suffered at the hands of a weak housing market, particularly in the United States.
The booming market, which had raised fears about growing household debt levels, is now widely expected to cool gradually.
TD forecasts the national average price will fall 7.4 percent this year from 2010, after peaking at C$367,000 ($382,292), and then hitting a trough at C$329,000 in 2013.
Sales are expected to come in around 416,000-435,000 units between 2011-13, slightly lower than the decade-long average.
All told, resale activity is expected to decline 15.2 percent, while prices are estimated to fall 10.2 percent, over the next two years.
That hides "considerable variations" in regional performances, where Vancouver and Toronto, the country's priciest markets, are forecast to have larger than average declines. Meanwhile, prospects in Calgary, Edmonton, and Regina are likely to fare better.
"No market is likely to experience a housing boom over the medium term," the report said.
Reporting by Ka Yan Ng; editing by Rob Wilson