The combination of a significant improvement in housing affordability and rising consumer confidence has caused a dramatic turnaround in housing demand across the country over the past six months.

To put this recovery in perspective, since the beginning of the year the volume of existing home sales in Canada has risen by 61.2% compared to a 0.5% rise during the first seven months of 2008.

Despite this very strong pattern of growth, though, sales year to date are still 6.2% below year-ago levels.

However, there are signs that by the end of the year this gap will narrow significantly.

In its most recent MLS Home Sales Forecast, the Canadian Real Estate Association (CREA) projects that home sales for 2009 will total 432,600.

This is a mere 0.4% below the 434,477 recorded in 2008 and considerably stronger than the association’s previous forecast of 360,900 units.

In 2010, CREA projects home sales will increase by 5.3% versus 2009, to 455,400 units.

CREA has upgraded its sales outlook for every province except Newfoundland.

In British Columbia, the association now expects unit home sales to increase by 5.2%, up from -19.2% in February.

In Ontario, CREA forecasts that sales will rise by +5.2% versus -19.1% previously.

Reflecting the increase in demand, house prices in Canada have jumped by almost 20% since the beginning of the year and were up 7.6% year over year in July.

For 2009 as a whole, CREA projects that house prices in Canada will increase by 1.5% versus 2008. It previously projected an 8.0% decline.

In 2010, house prices are now projected to increase by 2.1% compared to a previous projection of 1.1%.

Probably the most noteworthy aspect of the recent strength of housing demand is that it has occurred despite a considerable loss of jobs. Since the beginning of the year, full-time employment has fallen by 400,000.

Stronger growth in the U.S. plus a strengthening of domestic output in Canada should lead to an increase in employment, and housing demand should continue to grow into 2010, albeit at a somewhat more subdued pace than it has year to date.

If history is any guide, this sustained growth should lead to a strengthening of new construction in 2010.