Home prices keep rising, Ottawa monitoring

Thu Feb 11, 2010 10:26am EST
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OTTAWA (Reuters) - New home prices in Canada rose for the sixth straight month in December on historically low interest rates and rising consumer confidence, fueling fears the housing market is heating up too fast.

Statistics Canada said on Thursday that prices climbed 0.4 percent from November, matching the median forecast in a Reuters poll, but were down 0.9 percent compared with December 2008.

"If this pace of growth continues, builder prices should be back up to prerecession levels by next spring/summer," said Scotia Capital economists Derek Holt and Karen Cordes in a note.

On a monthly basis, the housing-only component of the new housing price index rose by 0.5 percent and the land-only component slipped 0.1 percent.

"This should put modest upward pressure on core inflation although other factors, such as the strong Canadian dollar, should continue to keep inflation well-contained," Holt and Cordes wrote.

As housing prices and sales gather speed, some economists have warned of a possible housing bubble in which home buyers take on more debt than they will be able to handle when interest rates rise, leading to an eventual collapse that could hamper the economic recovery.

Finance Minister Jim Flaherty and Bank of Canada Governor Mark Carney both said on Saturday they did not see evidence of a housing bubble, downplaying fears of a Canadian version of the U.S. subprime mortgage meltdown.

But Flaherty stands ready to tighten mortgage insurance rules for riskier mortgages if necessary, his press secretary, Chisholm Pothier, said on Thursday.

"There is no clear evidence now of a housing bubble in Canada," Pothier said.   Continued...