Canadian real estate sales this year are expected to come in about 15 per cent below their peak in 2007, but will hover close to the 10-year average, according to a home sales report from Bank of Nova Scotia.
The bank's Global Real Estate Trend report released Tuesday said the housing market should remain relatively balanced between both buyers and sellers throughout the year.
Momentum will be strongest in the first half of the year, as anticipated higher interest rates and tighter mortgage lending rules contribute to softening later in the year, Scotiabank senior economist Adrienne Warren said.
"Market conditions are expected to remain fairly balanced, favouring sellers to some degree in the spring, and buyers by the fall. This, in turn, suggests relatively steady prices, but with more downside risk later in the year," Ms. Warren said.
The broad economic factors supporting housing demand - historically low interest rates and steady employment growth - remain in place for further gains. However, sales will edge down this year and into 2012 as demand modifies following the record-breaking housing boom of the past decade.
"Ownership rates are now reaching both a cyclical and structural peak, given inevitably higher borrowing costs, more moderate medium-term growth prospects and more restrictive mortgage product offerings," she said.
One of the major changes beginning this month is a shortening of the maximum amortization period from 35 years to 30 years - adding about $100 a month to the average mortgage payment.
That could have the effect of pricing some first-time buyers out of the market, or at least forcing then to opt for a less expensive home, Ms. Warren said.
"Coming on the heels of earlier mortgage-tightening measures implemented in October 2008 and April, 2010, this latest round of regulatory changes will have at least some dampening impact on credit demand, home sales and prices," she wrote in the report.
This year's market is expected to follow a similar pattern to the housing activity seen last year.
A powerful driver of economic recovery, the real estate market kicked off last year on a tear as buyers rushed into the market in advance of higher interest rates, new mortgage rules and a new harmonized tax regime in two provinces.
But sales moderated in the second half of the year as a string of modest interest rate hikes, along with the new rules and the HST took their toll on demand.
The Bank of Canada announced Tuesday it will stick with its ultra-low interest rate policy of 1 per cent for now, but most economists suggest it will have to raise rates soon in order to ward off inflation.
Any increase would raise variable mortgage rates and any other loans tied to banks' prime rates.
Ms. Warren warns that rising mortgage rates, combined with low household incomes and high home prices will strain affordability and further reduce sales.
The report suggests that the number of unsold new homes is higher than average after builders raced to catch up to demand amid the post-recession boom.
"Combined with more muted sales expectations and potentially some slowing in household formation rates, this points to a lower level of sustainable starts over the next few years," it said.
Canada Mortgage and Housing Corp. predicted last month that between 157,000 and 192,000 new housing units will be built this year, with the number remaining virtually the same in 2012.
In its first-quarter housing market outlook, released Thursday, it said economic growth and lower unemployment will prop up the need for new homes.
Housing sale data from February won't be released until mid-March, but the Canadian Real Estate Association projected activity in the resale market likely picked last month in advance of the new mortgage rules coming into effect March 18.
About 42,379 homes were sold on CREA's Multiple Listing Services in January across the country, up 4.5 per cent from the 40,558 sold in December.