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Canada Real Estate Market Ends 2013 in Soft Landing Mode

Canadian existing home sales fell in December for a third month as the real estate market ended the year on a soft note after surging for much of 2013.

Sales fell 1.8 percent in December from the previous month, the Canadian Real Estate Association said today in a statement. In 2013, realtors sold 457,893 units through the Multiple-Listing Service, up 0.8 percent from a year ago with the average sales price in 2013 rising 5.2 percent to C$382,466 ($349,300).

The December figures cap a rebound year for a housing market that has defied predictions of a crash, bolstering the argument that home prices will soften gradually without destabilizing the nation’s economy. Canadian real estate will probably produce a similar performance in 2014, with moderate gains in sales and prices, said Doug Porter of Bank of Montreal.

“We look for some calming but not a correction” in 2014, Porter, chief economist at BMO Capital Markets in Toronto, said in a telephone interview.

The Toronto real estate market was among the most buoyant in 2013, with sales up 0.9 percent last year and prices gaining 5 percent. Vancouver posted price gains of 5.2 percent and a 14 percent increase in unit sales.

Bank of Canada Governor Stephen Poloz said in an interview last month he expects a “soft landing” in the housing market. In 2012, the central bank singled out household indebtedness as the greatest domestic threat to the economy. It introduced a rate-rise bias in April of that year, making it the only G-7 central bank to hint at higher borrowing costs.

Concern Abates

Since then, policy maker concern about an overheating hosing market has abated, with the focus turning to tepid economic growth and stagnant inflation.

Last year, the housing market shrugged off a slow start by March, posting seven straight months of gains before weakening in the final quarter. Homebuyers rushing to beat potentially higher interest rates contributed to the mid-year surge. The possibility of rising borrowing costs has receded amid signs of persistent economic slack and low inflation.

“Activity has gradually eased back from stronger than expected levels last summer and is now roughly in line with the ten year monthly average,” Laura Leyser, president of the Canadian Real Estate Association, said in the statement. “We’ll likely continue getting mixed signals in the months ahead.”

Remain Wary

Bankers and policy makers continue to warn against complacency. Toronto-Dominion Bank CEO Ed Clark said at a conference yesterday that bankers should remain wary of the housing market.

“I don’t think it’s going to collapse, but I do think that if you run a bank, you should be worried,” said Clark, 66. “It’s something we should watch.”

Policy makers also continue taking steps to rein in taxpayer exposure to the sector. Most recently, Canada Mortgage & Housing Corp. began paying a “risk fee” of 3.25 percent to the federal government on the insurance it writes.

Finance Minister Jim Flaherty last month said he regrets that Canada’s housing agency has grown as large as it has, and has promised to take additional measures if a reduction in the amount of government insurance is needed.

Julie Dickson, Canada’s top financial industry regulator, said in a Nov. 25 speech that policy makers need to continue to monitor closely the nation’s housing market amid warnings that a real estate bubble may be emerging.

Brokers are optimistic for the housing sector this year.

“Absent further mortgage rule changes, sales in 2014 may surpass the annual total for 2013 if demand holds steady,” Gregory Klump, the real estate association’s chief economist, said in today’s statement.

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