May 14, 2009 / 6:26 PM / in 9 years

Group cuts forecast for drop in home prices

TORONTO (Reuters) - Canadian resale home prices will likely fall 5.2 percent this year, less than earlier forecast, and April sales activity trended higher, the Canadian Real Estate Association said on Thursday.

<p>A house is seen for sale on the real estate market in Toronto, April 9, 2009. REUTERS/Mark Blinch</p>

The association said its new forecast for a 5.2 percent drop in 2009 to C$287,700 for the average home price compares with the fall of 8 percent it forecast earlier in the year. In 2008 the average selling price was C$303,594.

CREA also revised its forecast for 2009 sales to 370,500 units, a drop of 14.7 percent from 2008. That’s an increase from its earlier forecast of 360,900 sales this year due to better-than-expected first-quarter sales in British Columbia and Ontario.

“Monthly resale housing activity improved as the first quarter progressed, entering the second quarter on a rising trend and closing in on levels last seen before it fell sharply late last year,” said CREA chief economist Gregory Klump.

The association expects sales to rebound by 7.2 percent to 397,000 units in 2010, and prices to edge 1.7 percent higher to C$292,600, That’s up a bit from a CREA forecast in February for an average 2010 price of C$282,400.

Meanwhile, in a first glimpse at second quarter activity, monthly sales rose for a third straight month in April, up 11.2 percent.

That built on the momentum from the first quarter with a 10.3 percent rise in February and 7.7 percent advance in March. Compared with a year earlier, sales activity was down 11.8 percent in April.

The rise in April sales from March was the largest month-to-month increase in activity in more than five years, reinforcing recent signs that the housing market is thawing, but economists were cautious about declaring that the housing sector has recovered.

The average national home resale price in April was C$306,366, off 3.2 percent from a year earlier, when it reached its pre-recession high, while new listings fell 1.8 percent.

“The next few quarters of data will be crucial in determining if a trough has indeed formed or if this was just a respite with another leg down ahead,” said Pascal Gauthier, an economist at TD Bank, in a research note.

Economists were encouraged by CREA’s April figures, which suggested that the drop in home prices is trumping the weak economic environment and encouraging buyers.

“With above-average affordability and an improving supply/demand balance, the table appears set for a recovery in Canadian home sales and prices,” Robert Kavcic, an economist at BMO Capital Markets, said in a commentary.

“However, the main course of job creation is still in the oven, and could be for a few quarters yet.”

($1=$1.17 Canadian)

Reporting by Ka Yan Ng; editing by Peter Galloway

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