TORONTO (Reuters) - Canadian home resale prices rose in May from April, hitting record highs for the second month in a row, but the pace of growth continued to slow on an annual basis, the Teranet-National Bank Composite House Price Index showed on Wednesday.
Ten of the 11 metropolitan markets tracked by the index were higher and one was flat. It was the first time in nearly a year that none of the 11 markets declined.
The index, which measures price changes for repeat sales of single-family homes, showed overall prices climbed 1.1 percent in May from a month earlier. It does not show actual prices.
The index was up 5.8 percent from a year earlier, compared with a 5.9 percent rise in April, highlighting a slowing in year-on-year price growth that has been seen in other housing market indicators.
“House prices continue to gradually cool this year after finishing 2011 on a stronger footing,” said Mazen Issa, Canada macro strategist at TD Securities.
The index also showed a persisting dichotomy in the market with Toronto prices staying buoyant and the Vancouver market moderating.
Issa said tighter mortgage regulations announced last week by the federal government will help to reinforce the slowdown in the broad market, which will then spread to Toronto. That is likely to happen toward the end of the year, he said.
“A more pronounced correction in prices is expected to occur in 2013,” Issa said.
The government tightened conditions for both borrowers and lenders last week to put the brakes on home buying and deflate a possible housing bubble before it pops. The new rules and guidelines are expected to make it harder for home buyers and homeowners to take on massive debt.
Ottawa cut the maximum amortization of government-insured mortgages to 25 years from 30 years and lowered the maximum amount Canadians can borrow against the value of their homes to 80 percent from 85 percent, among other measures.
Canada does not have the subprime market that helped doom the United States to mortgage defaults and foreclosures, nor do lenders typically repackage and resell mortgages the way U.S. lenders did before the U.S. housing bust in 2009.
The resale gains in May were led by Calgary, up 2.0 percent. Edmonton and Toronto were both up 1.4 percent.
Vancouver notched a monthly gain of 1.1 percent, while prices were flat in Victoria.
Halifax notched a 0.4 percent gain, its seventh consecutive monthly gain and the longest run of monthly rises among the markets tracked.
Separately on Wednesday, TD Economics said the Canadian housing market will see a correction starting in early 2013 that will weigh on consumer spending and residential investment.
“In our view, average home prices will likely contract 10-15 percent over the next two years, with markets that are generally viewed as more overvalued, such as Toronto and Vancouver, experiencing the largest adjustments,” TD said.
Editing by Peter Galloway