House prices rise almost 20%, while resales activity dips

Figures released Wednesday may suggest a slight retreat in Canada's red hot housing market, but most analysts expect there's more froth ahead before the bubble — if there is one — finally bursts.

Numbers released by the Canadian Real Estate Association show that home resales dipped 2.8 per cent on a seasonally adjusted basis to 43,910 units in January, down from a record 45,154 units the previous month. Year over year, however, home resales activity is still up 58 per cent on an unadjusted basis from a year earlier, CREA said.

Prices, meanwhile, were up 19.6 per cent from a year earlier, surging to $328,537 in January, compared with $274,711 a year ago, the association said.

"Is this the start of a trend in an over-valued market?" asked Scotia Capital economist Derek Holt. "We doubt it."

"Instead, a rush to purchase is likely to occur before new mortgage rules, the July 1st introduction of the harmonized sales tax in Ontario and B.C., and second-half rate hikes kick in. That should continue to give a bid to prices in the spring market."

The CREA report comes one day after Finance Minister Jim Flaherty moved to stem what he insists is not a housing bubble, by making it tougher for people to get a mortgage.

Borrowers must now meet standards for a five-year fixed-rate mortgage, even if the buyer wants a variable rate mortgage. It is still not clear how the five-year rate, which may vary between lending institutions, will be determined.

"Make no mistake," said Douglas Porter, deputy chief economist at BMO Capital Markets, "Canadian home sales were still scorching hot in January."

Porter said signs are showing that the market will begin to simmer down later this year although only after another burst of activity in the spring, for the same reasons cited by Holt.

CREA, which has been in the crosshairs of the Competition Bureau of Canada over providing easier and possibly cheaper access to its Multiple Listing Service, said it expects rising inventories to help dampen price gains.

Seasonally adjusted new listings edged up 0.3 per cent in January from the month before, it said in its report, while also pointing out that on a non-seasonally adjusted basis the number of months of inventory in January stood at 6.6 months compared with year ago levels of 12.8 months.

"The resale market is becoming more balanced in a number of provinces," said CREA president Dale Ripplinger. "A more balanced market is likely to result in smaller price increases going forward."

Ontario accounted for about half of January's 2.8 per cent decline in sales volumes. Activity was also lower in British Columbia, Alberta and Manitoba, but reached a new high in Quebec.

(prepared by John Morrissy/Financial Post/Vancouver Sun)

Average house prices in January (percentage change from last year):

British Columbia $491,571 (19.0)
Alberta $343,264 (6.4)
Saskatchewan $228,430 (2.0)
Manitoba $206,454 (16.2)
Ontario $329,134 (19.5)
Quebec $236,424 (9.8)
New Brunswick $155,783 (9.7)
Nova Scotia $194,301 (8.3)
Prince Edward Island $159,319 (-3.6)
Newfoundland and Labrador $235,741(22.5)
Yukon $226,291 (-5.7)
Northwest Territories $353,129 (9.0)

Canada $328,537 (19.6)

Source: Canadian Real Estate Association