Resale prices up 1.2%

Last week saw Finance Minister Jim Flaherty announce changes to mortgage qualification rules in an attempt to cool down the housing market.

Home prices in Toronto have continued to climb since the market entered recovery mode last year. Resale prices rose 1.2 % month-over-month in December, according to the Teranet-National Bank House Price Index released this week. This amounts to a 7.1 % rise on a year-over-year basis.

However, analysts suggest that factors other than stricter borrowing rules will likely rein in future gains.

"The pace of increase, especially in the Toronto area, might not be lasting," says Simon Cote, managing director, property derivatives, National Bank of Canada. "New listings and new housing starts recently have both increased significantly. This added supply should at least reduce the rate of price increase in the Toronto area."

(Only homes that have sold at least two times are counted in the Teranet index.)

At the national level, the composite index of six metropolitan markets also rose 1.2% month-over-month, pushing the index to a new record above the pre-recessionary peak. Nationwide, according to the index, resale prices rose 5.2% year-over-year. This represented the third consecutive month in which prices were up from a year earlier, after 10 consecutive months of year-over-year deflation.

"For this month, I would concentrate on the index value itself (rather than monthly or yearly increases). The national index (132.15) has reached a higher level than it was, pre-recession in 2007," says Mr. Cote. "The supply will increase in the coming months [and then there's the] the Flaherty measures. All of this should at least reduce the pace of increase."

In addition to Toronto, three other cities experienced rises in excess of 1% for December: Calgary (1.6%), Vancouver (1.3%) and Montreal (1.1%). Montreal recorded its first healthy increase in four months. The Vancouver price gain was the smallest in that market for the seven months since prices started to rise again.

Halifax prices saw their first decline in six months, falling 1.9%. Ottawa remained steady, inching up 0.4% month-overmonth. On a year ago basis, prices in Calgary edged up 0.1%, the first year-over-year rise for 18 months. All the other markets that make up the composite index saw 12-month rises: 6.2% in Ottawa, 5.1% in Vancouver, 5.0% in Montreal and 2.9% in Halifax.

South of the border, there was better-than-expected news as resale home prices edged up 0.3% month-overmonth in December. This represents the seventh consecutive monthly rise in the S&P/ Case-Shiller 20-city composite home price index.

"The message here is that the stabilization in the housing market itself has continued apace in the U.S.," says Millan Mulraine, economics strategist at TD Securities. "The housing market recovery remains on track but . . . we do think that probably by the middle to the end of this year the momentum may lose some steam."

Too many houses and not enough people with jobs may hinder a more-rapid recovery in the market.

"The inventory of unsold homes remains huge and that has continued to put some downward pressure on prices ... that has been offset by the fiscal support" from Washington, Mr. Mulraine says. "When that support is removed, the soft underbelly of the U.S. housing market will be exposed. Particularly given that we don't expect the recovery to pick up any significant level of momentum, nor do we expect any massive job gains. These are the things which would likely provide some offset from the adverse impact of the removal of that stimulus."

Comparing the numbers from a year earlier, prices dropped 3.1%; this follows from the 5.3% drop recorded in November. Some areas showed gains but perhaps not for the healthiest reasons.

"A number of depressed places are beginning to show year-over-year gain, such as San Francisco, San Diego," Mr. Mulraine says. "That's because they're now a year displaced from when prices declined at a cataclysmic rate."

(prepared by Helen Morris/National Post)