July 14 (Bloomberg) -- Canadian sales of existing homes rose for a fifth month in June, adding to evidence that record low borrowing costs are fueling housing demand.

Sales rose 8.7 percent to 41,304 homes from the previous month on a seasonally adjusted basis, the Canadian Real Estate Association said today in a statement from Ottawa. Average home prices rose 3.6 percent from a year earlier and the inventory of unsold homes fell to its lowest since August 2007.

Recent data on Canada's housing market suggest the Bank of Canada's efforts to stimulate spending with interest rate cuts are helping fuel demand for homes and may be reversing a slump in home construction. The Bank of Canada, which forecast that housing will shed 1.1 percentage points from growth in 2009, has cut its benchmark lending rate to a record 0.25 percent.

"Obviously there is one segment of society that doesn't believe this will be a lengthy downturn," said Doug Porter, deputy chief economist with BMO Capital Markets in Toronto.

New home sales jumped a record 32 percent during the second quarter to 114,173 units, the realtor group said. The number of months needed to sell current inventories fell to 4.2 in June, the lowest level in more than two years.

Agents and Brokers

Output of real estate agents and brokers was up 8.2 percent in April, Statistics Canada said June 30. Canada Mortgage and Housing Corp. said July 9 that new home construction rose for a second month in June, while the total value of permits issued by municipalities jumped 15 percent in May.

One explanation for the pick-up in the real estate market, Porter said, may be that the decline earlier this year was "extreme" and created pent-up demand for homes. Existing home sales fell in January to their lowest since 2000.

"I can't help but wonder whether these gains are sustainable," Porter said.

The country also may be benefiting from a financial system that has largely escaped bad-asset problems plaguing other countries.

"The positive impact of low interest rates on mortgage demand is clearly much more powerful in Canada than in the U.S.," Derek Holt, an economist at Scotia Capital in Toronto, said in a note to investors.

To contact the reporter on this story: Theophilos Argitis in Ottawa at

Last Updated: July 14, 2009 15:23 EDT

Ted Wiggins

Ted Wiggins

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CENTURY 21 United Realty Inc., Brokerage*
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