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A sign advertises a house for sale in Toronto.CHRIS HELGREN/Reuters

The Canadian Real Estate Association has cut its forecast for home sales in Canada in 2017 and 2018 as a result of slowing activity in major Ontario cities, including Toronto.

The number of houses sold in Canada is expected to drop 5.3 per cent this year after posting a 6.4-per-cent increase last year. CREA says the trend will continue in 2018 with 2.3 per cent fewer houses expected to change hands.

Read more: Toronto housing market feels effect of foreign-buyers tax

The declines come mostly from lower forecasts for Ontario, where the number of homes sold is expected to be down 10.3 per cent this year and 5.9 per cent next year. Housing market reforms have led to a rapid cooling in sales in the Greater Golden Horseshoe region – a broad swath of Ontario surrounding Toronto – from a record pace in 2016.

"Because the region is home to a quarter of the Canadian population, changes in sales activity there have a large influence on results for the province and nationally," CREA said.

Alberta is expected to lead Canadian provinces for sales growth in 2017, with CREA forecasting total home sales will be up 7.4 per cent over 2016 as the Calgary market strengthens. However, CREA expects the pace to slow in 2018 with sales falling 0.4 per cent from the stronger base this year.

Despite the sales slowdown in Ontario this year, CREA forecasts average prices in the province will be up 8.7 per cent this year, largely due to major price gains recorded earlier in 2017. Prices are expected to be down 1.1 per cent in 2018 as the market flattens, CREA said.

Average prices in British Columbia are forecast to grow 2.2 per cent this year and remain unchanged in 2018, while Quebec is expected to see prices rise 4.5 per cent in 2017 and 3.2 per cent in 2018 as prices in the Montreal region continue to climb. Average prices in Alberta will be up modestly by 1.2 per cent in 2017 and 0.6 in 2018, CREA said.

On a national basis, home prices are expected to grow an average of 3.4 per cent in 2017 but fall 0.6 per cent in 2018. The trend is similar to a forecast from Moody's Analytics earlier this week, which also predicted solid growth in home prices this year followed by modest softening in 2018, although Moody's sees major cities in Ontario facing growing house prices over the next five years, while other major cities in Canada are expected to have flat or falling prices on a five-year basis.

CREA has lowered its forecasts significantly since June because of the impact on sales in the Toronto region from new housing measures announced by the Ontario government in April, including a 15-per-cent tax on foreign buyers. CREA said the changes "sidelined more buyers than was previously anticipated."

Average home prices in the Greater Toronto Area fell more than 20 per cent between April and August after peaking at record highs before the housing measures were announced. CREA said activity "has begun to show tentative signs of stabilizing" across the Greater Golden Horseshoe region, which includes the GTA.

In August, for example, home sales in the GTA climbed 14 per cent compared with July on a seasonally adjusted basis, CREA said.

"Time will tell whether the monthly rise in August sales activity marks the beginning of a rebound, particularly in the Greater Golden Horseshoe region and other higher-priced urban centres," CREA chief economist Gregory Klump said in a statement.

However, the association said the additional pressures from tougher mortgage rules and rising interest rates "will continue to lean against housing market activity" for the rest of 2017 and into 2018. The association said its forecasts could fall further depending on the pace of future interest rate increases.

"Additional rate increases and further tightening of mortgage regulations represent downside risks to the sales forecast, while improving Canadian economic fundamentals represent upside risks," the forecast said.

Bank of Montreal economist Benjamin Reitzes said the size of increase in Toronto sales in August was surprising, but surrounding regions around Toronto "were very much a mixed bag." However, he said it appears the housing market may be stabilizing after the initial decline, and "the worst may have passed."

Also Friday, Statistics Canada reported average household credit-market debt compared to disposable income rose to a new record-high level of 167.8 per cent in the second quarter of 2017. That means for every dollar of disposable income, households in Canada had $1.68 in debt, including consumer credit and mortgage loans.

Mr. Reitzes said the slowing housing market should flatten growth in the debt-to-disposable income ratio during the second half of the year, however.

"Household balance sheets deteriorated somewhat, but remain healthy over all, although rising interest rates will be a challenge," he said in a research report.