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MONTREAL -- Canadian home sales are expected to drop to their lowest level in three years in 2018, driven largely by a decline in Ontario, the Canadian Real Estate Association said Friday.
The association expects that 495,100 homes will be sold next year after downgrading its sales forecast for 2017 on a 9.9 per cent drop in August compared with a year ago.
It expects sales will fall 2.3 per cent in 2018 following a 5.3 per cent decline this year to 506,000, or 20,000 fewer than previously forecast in June.
Seasonally adjusted sales in August rose 1.3 per cent from the prior month -- the first gain in five months -- due to a 14.3 per cent boost in the Greater Toronto Area. Still, sales in this area were down 35 per cent from a year ago.
Benjamin Reitzes of BMO Capital Markets said the August data suggests the worst may have passed for the GTA following Ontario policy changes to restrict foreign buyers, but the future is unclear.
"The Bank of Canada's rate hikes should help contain any renewed exuberance, but if things do heat up again, expect policymakers to step in before too long," he wrote in a report.
RBC Capital Markets senior economist Robert Hogue said last month's numbers show that Canada's housing market isn't becoming "unhinged."
"Our view remains that Canada's market is in the process of transitioning to a more moderate level of activity in an environment marked by tighter policy, rising interest rates and poor affordability in certain regions," he wrote.
CREA projects sales in British Columbia and Ontario will fall by about 10 per cent in 2017, compared to record highs set in 2016.
The association said sales in August were down in nearly two-thirds of all local markets, led by the Greater Toronto Area and nearby housing markets.
In Vancouver, August sales were up 7.3 per cent from July and 21.3 per cent higher than a year ago.
"Experience shows that homebuyers watch mortgage rates carefully and that recent interest rate increases will prompt some to make an offer before rates move higher, while moving others to the sidelines," stated CREA President Andrew Peck.
The average price for a home sold last month was $472,247, up 3.6 per cent compared to a year ago. Greater Toronto was up 3.1 per cent and Greater Vancouver 17.9 per cent.
Excluding these regions, the national average price was $373,859.
The national average price is forecast to rise by 3.4 per cent to $507,700 in 2017, lower than its prior forecast because of fewer luxury home sales in the Greater Golden Horseshoe region of Ontario.
However, it is expected to dip by 0.6 per to $503,500 next year largely reflecting that a record number of high-end home sales around Toronto earlier this year likely won't be repeated in 2018.
Newfoundland and Labrador sales this year are forecast to decrease by 8.1 per cent, and Saskatchewan down four per cent.
Alberta is projected to have the country's largest increase at 7.4 per cent, but that's still below the provincial 10-year average.
Sales are forecast to grow 5.4 per cent in Quebec and 5.7 per cent in New Brunswick.
Manitoba and Quebec are the only two provinces expected to set new annual sales records in 2017, while sales in New Brunswick and Prince Edward Island are on track to come up just short of all-time record levels.