UPDATE 1-Canada existing home sales rise 1.2 pct in October

Tue Nov 15, 2011 10:53am EST

* Sales rise in October, build on September uptick
    * Industry group raises 2011, 2012 sales forecasts

    By Andrea Hopkins
    TORONTO, Nov 15 (Reuters) - Sales of existing homes in
Canada rose in October to the highest level since January,
boosting forecasts for national resale activity for 2011 and
confirming Canada's housing market remains robust.
    National sales of existing homes rose 1.2 percent in
October from the previous month, building on September's 2.5
percent gain, the Canadian Real Estate Association (CREA) said
on Monday.
    The industry group said sales activity was up 8.5 percent
above October 2010, reflecting weakened activity one year ago
and a pickup in activity after a mid-year lull.
    "There was no shortage of headline news in October about
global financial market volatility and economic uncertainty,
but it doesn't appear to have dampened homebuyers' spirits,"
Gary Morse, CREA president, said in a statement.
    "Interest rates are at low levels and are likely to stay
that way for some time to come. Homebuyers clearly see the
opportunities that the current interest rate environment
presents," he said.
    CREA said the national average price in October rose 5.5
percent from a year earlier to just under C$362,899 ($356,000),
the smallest increase since January.
    Two straight months of increases, including
stronger-than-expected growth in Ontario's housing market, have
boosted the group's 2011 and 2012 forecasts. CREA increased its
annual sales growth forecast for 2011 to 1.4 percent from 0.9
percent.
    RATE POLICY SUPPORTIVE
    Canada's housing sector played a major role in its economic
recovery. The country avoided the subprime housing boom and
collapse that drove the United States into recession and helped
trigger the global financial crisis.
    Property prices and sales briefly weakened after the
crisis. But the Bank of Canada's decision to cut interest rates
to a record low pulled mortgage rates lower and fueled fresh
growth.
    The housing market was helped by the fact Canada's
conservative banks escaped the crisis largely unscathed and
were able to keep lending. The fear now for many policymakers
is a fresh asset bubble could be in the works.
    Still, most analysts say the housing sector is likely to
cool in the year ahead. Government changes to mortgage rules
aimed at preventing a bubble have helped curb demand. The weak
U.S. economy -- destination for most of Canada's exports -- and
financial market volatility have also hurt sentiment.
    "Canadian housing continues to look balanced, with some
local markets performing better than others. Low mortgage rates
are offsetting weaker consumer confidence and cooling job
growth. Relatively stable sales and price trends are likely in
the year ahead," BMO Capital Markets economist Robert Kavcic
said in a note to clients.
    CREA forecast national sales activity will ease in 2012 by
0.5 percent to 451,200 units, an upward revision of its
previous 2012 sales forecast, reflecting "expectations that
Canadian interest rates will remain low until well into next
year."
    The Bank of Canada took the prospect of interest rate hikes
off the table last month with downgraded forecasts that showed
some of the gloss coming off an economic recovery touted as the
strongest in the G7.
    CREA said a total of 397,561 homes have traded hands so far
this year, a 1.8 percent rise from the first 10 months of 2010,
but in line with the 10-year average.
    "While the combination of stable new listings and stronger
sales made for a slightly tighter balance between supply and
demand in October, the national housing market remains firmly
rooted in balanced territory," CREA said.
    The national sales-to-new listings ratio, a measure of
market balance, stood at 53.4 percent in October, up from 52.8
percent in September.
    The number of months of inventory stood at six months at
the end of October on a national basis, little changed from the
6.1 months' supply in September. It has remained stable at
about six months since April.
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