March 12, 2015 / 3:28 PM / 3 years ago

WRAPUP 1-Canada home prices struggle, correction seen in some markets

TORONTO, March 12 (Reuters) - Prices for new homes in Canada fell for the first time in nearly five years in January, and figures for home resales in February showed a correction underway in several markets with prices scratching out just a slight gain nationally.

Another report on Thursday showed Canada’s household debt-to-income ratio rose to a record high in the fourth quarter, making consumers more vulnerable just as some economists say the housing market is at a tipping point.

“We can’t stress enough the divergence in housing market conditions at the provincial level,” said David Madani, economist at Capital Economics, who has long expected a housing market crash. “While the near-term outlook looks stable for Ontario and British Columbia, dark clouds are forming over most other provinces, especially those hit hardest by the oil price slump.”

Canada escaped the housing crisis that devastated the United States in 2009, and average prices have doubled in the past decade.

Prices for existing homes, the largest segment of the Canadian market, rose 0.1 percent in February from January and were up 4.4 percent from a year earlier, the Teranet-National Bank Composite House Price Index showed.

But the index showed price gains in only three of 11 markets surveyed - Vancouver, Victoria and Hamilton - and noted a price correction underway in several markets, notably in Calgary, Alberta. Alberta is a major oil producer and has been hit hard by dropping crude prices.

“In some markets there have clearly been corrections in progress. The monthly retreat in Calgary was the fourth in a row, for a cumulative decline of 2.3 percent ... East of Toronto the corrections have tended to be larger,” Teranet said.

A Statistics Canada report showed new home prices slipped 0.1 percent in January, the first decline since July 2010. Prices fell in five of 21 metropolitan areas surveyed, while five increased and prices were unchanged in 11 regions, including Calgary.

Another Statistics Canada report showed the household debt-to-income ratio rose to a record high 163.3 percent in the fourth quarter. It was the third quarter in a row that disposable income increased at a slower rate than household debt.

The Bank of Canada watches the measure closely for signs consumers may be overextended.

“We’ve outlined on a number of occasions that the high levels of household debt do create vulnerabilities in the Canadian economy,” central bank economist Rhys Mendes told the House of Commons finance committee Thursday. (Additional reporting by Leah Schnurr in Ottawa; Editing by Peter Galloway)

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