Canada home price index at new record, but may cool

Wed Jul 25, 2012 11:21pm EDT
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By Andrea Hopkins

TORONTO (Reuters) - Canadian home prices hit a third straight record high in June, but a slowdown in the pace of price increases suggested the red-hot housing market is cooling, the Teranet-National Bank Composite House Price Index showed on Wednesday.

The index, which measures price changes for repeat sales of single-family homes, showed overall prices climbed 1.2 percent in June from a month earlier. From a year earlier, the index was up 5.4 percent. But it was the seventh straight month in which year-on-year price gains slowed.

"The 11-city composite index has steadily decelerated on a year-ago basis since late 2011. We would have seen a sharper deceleration in the index if it were not for the Toronto market - which holds the greatest weight in the index," Mazen Issa, Canada macro strategist at TD Securities, said in a note.

None of the 11 metropolitan markets surveyed showed a price decline from the month before. The same was true in May. No actual prices were given.

The producers of the data noted that the sharpest monthly changes in the index tend to occur in May and June.

A long run-up in Canadian house prices and low supply in some markets has sparked concern that a housing bubble may be forming. The federal government has tightened mortgage lending rules four times in four years to try to prevent borrowers from taking on too much debt to buy into the market.

Those moves, combined with already slowing demand, should help ensure the housing boom deflates rather that bursts, Issa said.

"We believe that the combination of tighter mortgage regulations and a more frugal household will slow housing activity in Toronto, bringing it closer in line with the broader national market, which remains on course for a soft landing," he wrote in the research note.   Continued...