December 14, 2016 / 1:33 PM / 2 years ago

Canada home prices rise again, household debt hits record

OTTAWA (Reuters) - Canadian home prices rose in November from a month earlier as prices continued to soar in Toronto, the biggest market, helping to drive household debt to another record, separate reports showed on Wednesday.

FILE PHOTO - Realtors' signs are hung outside a newly sold property in a Vancouver neighbourhood, September 9, 2014. REUTERS/Julie Gordon

Surging home prices and consumer debt have sparked fears the gains could end in a U.S.-style housing collapse, but there are signs of cooling real estate markets outside of Toronto as the government takes more steps to rein in borrowing.

Prices for existing homes rose 0.2 percent in November from a month earlier as seven of the 11 cities surveyed in the Teranet-National Bank Composite House Price Index saw increases, offsetting a second consecutive decline in Vancouver.

Years of low interest rates since the financial crisis, as well as rising home prices, have encouraged Canadians to take on more debt, but the government and regulators have tightened mortgage lending rules repeatedly in recent years in a bid to prevent risky lending.

The house price index, which encompasses repeat sales of single-family homes, showed prices rose 1.1 percent in Toronto and 1.4 percent in nearby Hamilton in November, while Vancouver prices fell 1.3 percent.

The Vancouver housing market was already cooling when the provincial government imposed a 15 percent tax on foreign buyers in August to counter a backlash against wealthy foreigners, mostly from mainland China, who were blamed for driving up prices.

Nationally, prices are up 11.9 percent from a year earlier, with Vancouver prices up 19.3 percent and Toronto up 18.5 percent.

A separate report by Statistics Canada showed household debt as a share of income hit another record in the third quarter as the pace of borrowing outstripped wage gains.

“However, we might start to see the ratio flatten out a bit in 2017 as the Vancouver housing market has cooled notably due to the foreign buyers’ tax, and the new mortgage rule should dampen activity modestly in 2017,” Benjamin Reitzes, senior economist at BMO Capital Markets, said in a research note.

The ratio of debt to disposable income rose to 166.9 percent from an adjusted 166.4 percent in the second quarter. That meant Canadians owed C$1.67 for every dollar of disposable income they had.

The Bank of Canada has flagged the high level of debt as a potential vulnerability for the financial system and is expected to update its view in a report on Thursday.

Additional reporting by Leah Schnurr Editing by W Simon

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