(Reuters) - Activity in Canada's housing sector is slowing, but the average home price is expected to rise in each of the next two years, Canada Mortgage and Housing Corp forecast on Monday.
Experts have been calling for a slowdown in the sector for months, pointing to high real estate prices at a time when household debt levels have hit record highs.
However, the government housing agency projected Canadian housing starts and sales of existing homes will be little changed over the next 24 months.
"With the Canadian economy set to expand at a moderate pace and mortgage rates expected to remain low, activity levels in 2012 in both new home construction and sales of existing homes will stay close to levels seen in 2011," Mathieu Laberge, deputy chief economist for CMHC, said in a statement.
The Bank of Canada has kept interest rates at record lows since the financial crisis began in 2008 and is widely expected to keep is main policy rate at its current 1 percent target through 2013.
Strong demand for housing helped propel Canada's economy to a quick recovery following the 2008 recession. But continued high prices and heavy borrowing amid rock-bottom mortgage rates have policymakers worried about overheating.
While some observers fear there will be a major correction in the housing market when rates start rising again, few expect a U.S.-style subprime collapse. Recent data has suggested a soft landing for the housing market.
CMHC said housing starts are expected to be around 190,000 units in 2012, down slightly from 2011's 193,950. In 2013, starts are seen bouncing back to 193,800 units.
However, the agency predicted prices would continue to rise, with the average Canadian home reaching C$368,900 ($368,900) in 2012, up about 1.5 percent from 2011's average of C$363,365. For 2013, the average price was seen at C$379,000, a 4.3 percent increase over last year's level.
CMHC said sales of existing homes will edge up to 457,300 in 2012 from 456,316 in 2011. In 2013 sales are expected to climb to 468,200.
Reporting by Jon Cook; editing by Rob Wilson