June 17, 2013 / 1:28 PM / 6 years ago

Canadian home sales jump in May from April: CREA

TORONTO (Reuters) - Sales of existing homes in Canada jumped in May from April and will be higher than expected both this year and next, the Canadian Real Estate Association (CREA) said on Monday, adding to evidence that the market has managed a soft landing.

A home is put up for sale in downtown Montreal, July 14, 2009. REUTERS/Shaun Best

CREA, the industry group for real estate agents, said sales were up 3.6 percent in May from the month before, the largest monthly gain in almost 2-1/2 years. It was the latest data to suggest the Canadian housing market - far from crashing, as some economists had predicted - is doing better than expected.

Compared with May 2012, sales were down 2.6 percent.

May’s increase lifted national activity almost to where it was just before Canada’s Conservative government tightened mortgage lending rules last summer, and marked what CREA called “the first noteworthy increase” in the past nine months.

Fearing a housing bubble after years of heated activity, the government changed lending rules to make it harder for consumers to take on too much debt to buy a house. The changes, which took effect in July 2012, shortened the maximum length of a government-insured mortgage and limited the amount people can borrow against their homes.

The housing market slowed dramatically in response to the tighter rules, and some economists worried that the U.S. housing crash of 2009 would be repeated in Canada. But prices, which lag sales activity, have so far only slowed their rise, and the spring market has brought the traditional seasonal bounce in home buying.

CREA said its home price index was up 2.3 percent in May from a year earlier.

“A slowdown in prices has yet to materialize and in the absence of a major trigger - via an interest rate shock or surge in unemployment - the housing market is on course for a soft landing,” Mazen Issa, Canada macro strategist at TD Securities, said in a research note.

“The key urban markets of Toronto and Vancouver have received most of the attention given their relative size and degree of excesses. But these markets appear to be past the worst of the slowdown, while other major markets such as Calgary and Edmonton have been buoyant,” he added.

The CREA data echoed several stronger-than-expected economic indicators released in recent weeks, including a surge in job growth and a jump in housing starts in May.

“It’s important not to put too much stock in one month’s worth of data, but taken together with other recently published economic gauges, Canadian resale housing market results provide further evidence of the widely anticipated firming trend for Canadian economy,” Gregory Klump, CREA’s chief economist, said in a statement.

The group revised its forecast for home sales in 2013 and 2014, saying the monthly sales trend strengthened toward the end of the first quarter and accelerated in the second quarter.

CREA now forecasts national sales of 443,400 units in 2013, down 2.5 percent from 454,573 in 2012. It had previously forecast a decline of 2.9 percent.

For 2014, CREA sees 464,300 sales, a rebound of 4.7 percent from this year, reflecting a slow but steady improvement in activity. This would still leave national sales one-tenth of a percentage point below the 10-year-average, with activity remaining below levels recorded in the first half of 2012.

CREA forecasts the average national price will rise by 2.1 percent to C$370,900 ($364,700)in 2013. The 2014 forecast has also been revised up to $377,700, an annual increase of 1.8 percent, CREA said.

The number of newly listed homes rose 1.9 percent month-over-month in May. With a larger increase in sales than new listings, the national sales-to-new listings ratio rose to 51.4 percent in May, compared with 50.6 percent in April, considered firmly in balanced territory.

CREA said there were 6.4 months of inventory at the end of May, firming slightly from 6.6 months at the end of April.

($1=$1.017 Canadian)

Reporting by Andrea Hopkins; editing by Jim Marshall and Peter Galloway

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