TORONTO (Reuters) - The Canadian Real Estate Association cut its 2010 forecast for resale house prices and sales on Wednesday, saying sales in British Columbia were not as strong as expected at the start of the year.

The industry group said it now expects the average price to climb 1.6 percent to C$325,400 ($309,905) nationally in 2010, a big drop from its previous forecast of a 5.4 percent gain.

Sales are seen rising 5.5 percent to 490,600 units in 2010. In February, CREA forecast sales of 527,300 units in 2010, up 13.3 percent from 2009.

The group said a decline in affordability in British Columbia hurt sales in the province during the first quarter, although sales in Ontario were much as expected. The two provinces hold some of the country's biggest and highest-priced markets.

"Lower expected activity in British Columbia accounts for more than half of the downward revision in national sales activity," the group said.

CREA said it now expects sales in British Columbia to fall 5.9 percent this year to 80,000 units from 85,028 in 2009, while prices in the Pacific Coast province are seen up 2.3 percent at C$476,400.

It expects Ontario sales to rise 10 percent to 215,400 units, a record but a smaller gain than previous thought. Prices in the province are expected to increase 3.9 percent to C$330,900.

The association had expected to see stronger sales in the first half of the year ahead of the introduction of new mortgage rules, rising interest rates and new sales tax regimes in Ontario and British Columbia.

Month-to-month home resales have been cooling from the beginning of the year, while listings have also been rising, quieting a feisty debate last year that a bubble was forming in the housing sector.

The real estate association repeated on Wednesday that it did not see a U.S.-style housing price correction, mostly because of solid mortgage market trends.

"A downward trend in national sales activity combined with an increase in listings will result in a more balanced market," said Gregory Klump, CREA's chief economist.

Canada's housing market has been a leading supporter in the country's recovery, spurred by record low interest rates.

The Bank of Canada raised interest rates for the first time in three years this week, bringing its benchmark overnight rate up a quarter-point to 0.5 percent. Commercial banks responded with a similar increase to the prime rate.

The central bank has said that housing and consumer spending led growth in the first quarter, but it expected household spending would "decelerate to a pace more consistent with income growth."

For 2011, CREA said it forecasts an 8.5 percent slide in sales to 448,700 units, with every province except Newfoundland and Labrador to post declines from this year. An earlier forecast pegged the slide at 7.1 percent.

The average national price is seen slipping 2.2 percent to C$318,300, compared with an earlier view of a 1.5 percent decline.

CREA's report is broadly in line with recent views from other bank economists, who say a home ownership costs are rising and affordability is eroding, while house prices are due to retreat in the coming year or two.

($1=$1.05 Canadian)