March 9, 2011 / 2:19 PM / 7 years ago

Canada new home prices hit record high, pace slows

<p>A sold sign is displayed in front of a home in Toronto December 15, 2009. REUTERS/Mike Cassese</p>

OTTAWA (Reuters) - Canadian new home prices rose more than expected in January and hit a record high, but the pace of growth was the slowest since March, adding to evidence that the housing sector is starting to cool.

Statistics Canada’s new housing price index, released on Wednesday, rose 0.2 percent in January from December. Analysts in a Reuters poll had forecast a 0.1 percent increase, following a 0.1 percent gain in December.

Compared with January 2010, prices were up 1.9 percent, easing from a 2.1 percent year-on-year gain in December. It was the smallest annual rise since March.

After taking a brief hit from the financial crisis, Canada’s housing market bounced back strongly in 2009 and helped drive the economy out of recession, fueled by low mortgage rates and relatively healthy banking sector.

But double-digit price gains seen in late 2009 and early 2010 worried policymakers and prompted the Canadian government to tighten mortgage rules. Three interest rate hikes by the Bank of Canada last year also helped cool demand.

Analysts expect more rate increases this year and say the lagging impact of tighter mortgage rules will further drag on the housing sector. Economic recovery in Canada is now expected to be driven less by housing and more by business investment and export growth.

Earlier this week Statscan reported that the overall value of Canadian building permits dropped by 5.1 percent in January from December, mainly due to a fall in applications for permits for condominium buildings.

HOUSING POLL SHOWS CONFIDENCE

The January new-home price data showed the biggest increase in Winnipeg, Manitoba, up 0.7 percent, as builders introduced new list prices at the start of the year.

Prices climbed in nine of the 21 cities surveyed, with gains recorded in Toronto and Oshawa, Ontario, as well as in Quebec City and Montreal. Prices were flat in nine cities and edged down in three.

Separately, a poll released by Royal Bank of Canada, the country’s largest lender, on Wednesday showed Canadians are assiduously paying down their mortgages and are confident they have the means to weather a drop in house prices.

It showed almost three-quarters of Canadians, or 73 percent, believe that they or their families are well-positioned in the event of a home-price fall.

With additional reporting by Chandra Ramarathnam and Ka Yan Ng; additional writing by Jeffrey Hodgson; editing by Peter Galloway

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