New home prices rising in Canada, but relatively slowly

The latest data shows a steady rise in prices for new homes in Canada, though lacking the dramatic kind of gains being seen in the resale market.

Statistics Canada's new-home price index, released Thursday, rose 0.4 per cent in January from the month before, the same growth rate for the third consecutive month. It also marked the seventh straight monthly increase.

Home prices were up 0.1 per cent on an annual basis in January, compared with a 0.9 per cent decline in December 2009.

"This was the first year-over-year increase since December 2008, mostly as a result of price decreases in Western Canada that were less pronounced this January than in previous months," Statistics Canada said in the report.

Douglas Porter, deputy chief economist with BMO Capital Markets, noted that, in comparison to the resale market, it's taken several more months for prices of new homes to recover to the point of passing year-earlier levels.

He also said that the modest gains seen in new-home prices cast doubt on warnings that a housing bubble is developing in Canada.

"It certainly suggests things have recovered and turned the corner, but this is not even in the same universe as a bubble," Porter said. "To have prices basically unchanged within the last year is certainly no one's definition of a bubble."

By contrast, the Canadian Real Estate Association's data from January showed the average price of existing home sales up almost 20 per cent from a year ago to $328,537.

The new-housing price index for January saw the biggest increases in St. John's, N.L., at 1.7 per cent, Winnipeg at 0.7 per cent, and Toronto and Oshawa, Ont., at 0.6 per cent. Ottawa-Gatineau, Saskatoon and Calgary all registered 0.5 per cent increases, according to Statistics Canada.

The largest monthly decrease in new-housing prices was recorded in the St. Catharines-Niagara region of Ontario, where prices fell by 0.4 per cent. Home prices in Charlottetown fell 0.2 per cent and in New Brunswick, Saint John, Fredericton and Moncton each registered declines of 0.2 per cent.

(prepared by Derek Abma/Financial Post)