November 9, 2010 / 1:42 PM / 7 years ago

Canada Sept new home prices rise more than expected

OTTAWA (Reuters) - New home prices in Canada rose slightly more than expected in September, but the gains resulted from higher land development fees as housing activity lost more momentum as a driver of the economic recovery.

The new housing price index climbed 0.2 percent in the month, following a 0.1 percent monthly increase in August, Statistics Canada reported on Tuesday.

Analysts in a Reuters poll had forecast, on average, a 0.1 percent increase in September.

The housing-only component of the new housing price index was flat on a monthly basis and up 3.8 percent on the year. The land-only component was up 0.5 percent in September and up 0.2 percent on the year.

The top contributors to the monthly increase were Montreal and Calgary, where higher development fees pushed prices up as builders moved to new areas of those cities.

The report echoed other data suggesting that the housing sector will not drive economic growth as forcefully as it had until earlier this year.

It also suggests the Bank of Canada does not have to worry about inflationary pressures from the sector as it keeps interest rates on hold on fears the global recovery could falter.

“A flat reading on the house-only component continues to suggest absent price pressures stemming from the housing market,” wrote Scotia Capital economists Derek Holt and Gorica Djeric in a note to clients.

“Keeping in mind that housing’s principal role in CPI works through new home prices and not the resale market with the exception of how both segments impact other CPI components like homeowners’ insurance or property taxes,” they said, referring to the consumer price index.

New home prices rose in 10 of the 21 cities in the index, edged down in three and were unchanged in either, Statistics Canada said. Compared with September 2009, prices climbed 2.7 percent.

Housing starts fell 9.2 percent in October to their lowest in more than a year, Canada Mortgage and Housing Corp said on Monday. That was the fifth monthly decline in the past six months.

Heated demand for housing and rapidly rising prices over the past decade and through the 2009 recession has prompted some economists to warn of a possible housing bubble.

Residential mortgage credit topped C$1 trillion as of August 2010, according to the Canadian Association of Accredited Mortgage Professionals.

Bank of Canada Governor Mark Carney has repeatedly warned Canadians to make sure they can afford to service their debts when interest rates inevitably start to rise.

Reporting by Louise Egan and Howaida Sorour; Editing by Frank McGurty

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