Housing activity in the country is slowing down after a busy first half, especially in British Columbia, Alberta and Ontario where prices are expected to fall in the coming months.

The Canadian Real Estate Association once again lowered its forecast via its Multiple Listing Service (MLS) for this year and next. Sales are now expected to reach just 442,200 units in 2010 for an annual decline of 4.9%. CREA had already set expectations lower back in July calling for a 1.2% decline.

Average home prices are on track to rise 3.1% this year to $330,200. That’s slightly lower than the 3.5% gain CREA forecast this past summer.

Modest price gains are expected in 2011, except in B.C., Alberta and Ontario. Prices in B.C. and Ontario could drop roughly 1.3% to $326,000 due to falling demand. Both provinces were red-hot with pent-up demand earlier this year.

Weak economic and jobs growth, muted consumer confidence and rising interest rates will likely hold back Canada’s property market in 2011, CREA said. Home sales are forecast to drop an additional 9% to 402,500 units next year.

Sales and listings have swung widely in recent months but the balance of supply and demand remains balanced, CREA said.

“Housing demand and supply is stabilizing,” said Gregory Klump, CREA’s chief economist.

“That’s good news for home buyers, who will feel less hurried to make an offer than they did when transitory factors ignited housing demand in early 2010.

“It’s also good news for home sellers, who will feel more confident about price stability now that the housing market has become balanced.”

Building permits in Canada spiked dramatically in September following two months of declines, Statistics Canada reported Friday.

The value of permits jumped a whopping 15.3% to $6.6 billion in the month. Economists had forecast an increase of just 2.3%.

Residential construction intentions were up 8.3% with Ontario and B.C. accounting for most of the growth. And after months of steady declines, there may be an influx of new single-family homes coming to the market as permits rose 9.5% and in seven provinces in September.

Meanwhile, the non-residential sector saw a 26.7% gain after registering a 24.2% drop in August

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