Canadian home prices return to all-time high in December with 0.1% rise: Teranet

Reuters, January 14, 2014 - TORONTO - Canadian home resale prices edged up in December and returned the Teranet-National Bank Composite House Price Index to a record high after a decline the month before. The index, which measures price changes for repeat sales of single-family homes, showed on Tuesday that national prices rose 0.1% last month from November. In November, they fell 0.1% from October.

The housing market cooled in 2012 after Canada’s government tightened mortgage rules due to worries that low interest rates were prompting Canadians to take on too much debt.

While the sector bounced back in 2013, some signs of a slowdown began to emerge in the final months of the year, with building permits and housing starts falling and prices leveling off amid speculation about rising mortgage rates and oversupply.

In December, resale prices were up 3.8% from a year earlier after November’s 3.4% year-on-year gain. The Teranet index does not show actual prices.

For 2013 as a whole, the Teranet price index decelerated to a 2.6% average gain, down from a 4.8% rise in 2012 and a 5.0% surge in 2011, noted Mazen Issa, senior Canada macro strategist at TD Securities in Toronto.

“Despite the uptrend in home price appreciation in the latter half of the year, we expect home prices to decelerate in the year ahead, albeit modestly as monetary policy is expected to stay accommodative for an extensive period of time,” Issa said.

In October, the Bank of Canada dropped its policy tightening bias, increasing expectations that official interest rates will remain at historically low levels for longer than had been thought. Still, mortgage rates are expected to rise gradually as the U.S. Federal Reserve scales back its stimulative measures and financial conditions gradually tighten around the world.

That is expected to dampen the rise in house prices in 2014, and most economists say the market will have a soft landing from its boom years rather than a U.S.-style crash.

But some are concerned that any big drop in house prices would leave many indebted households under water.

The Teranet data showed that while overall prices rose in the month, prices fell in December from the month before in eight of 11 cities. Gains included a 0.6% rise in Vancouver and Edmonton and a 0.4% rise in Toronto.

Prices fell 1.7% in Victoria, 1.2% in Halifax, 0.6% in Hamilton and Montreal, 0.4% in Quebec, 0.3% in Calgary and Ottawa, and 0.1% in Winnipeg.

Year-over-year price gains were seen in every market but Victoria, where they were down 4.0% from December 2012.

Gains on the year were led by a 6.5% rise in Calgary, a 5.5% rise in Vancouver and a 4.9% rise in Toronto. Prices were up 3.7% in Hamilton, 3.6% in Edmonton, 3.4% in Winnipeg, 1.5% in Quebec, 1.0% in Ottawa and 0.4% in Halifax and Montreal.

© Thomson Reuters 2014