Existing Home Sales Rise 1.2 Percent in October

TORONTO (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.

(Editing by Jeffrey Hodgson)