Value of new homes edges up

The value of new homes in Canada barely grew in June, with many regions posting annual declines once adjusted for inflation, new figures show. But despite forecasts for more soft readings ahead, economists say Canadians are not expected to experience a major U. S.-style correction because prices are still historically high.

The continued correction of house prices in the previous boom regions of Western Canada, particularly Alberta, caused growth in the national new-home price index to ease to an annual rate of 3.5% in June compared with 4.1% the previous month, Statistics Canada figures showed yesterday.

It was the slowest yearly rate of growth since March, 2002, and barely outpaced headline inflation, which rose to 3.1% in June.

Growth has slowed since peaking at the unsustainable pace of 12.1% in August, 2006. However, it still averaged a high 7.8% in 2007.

Sal Guatieri, senior economist at BMO Capital Markets, said a correction was necessary following the steep gains of recent years.

He expects growth to continue to slow in the second half of 2008.

"Housing demand has already slackened off in the first half of this year, and that likely will continue now that we have a couple straight months of job losses," Mr. Gautieri said.

John Clinkard, chief economist at Deutsche Bank, said the nominal value of new Canadian homes would likely end the year flat, which would mean the real value -- once prices are adjusted for inflation -- would decline. He noted this had occurred in the existing-homes market.

The national average price for existing homes was $314,028 in June, up less than 0.01% from the previous year and well below the pace of inflation, recent figures from the Canadian Real Estate Association showed.

Mr. Clinkard said he did not expect the softer growth, even with declines in real prices, to have a major negative impact on Canada because the results had been skewed by the correction in markets such as Calgary, Saskatoon, Sask., and Vancouver.

Mr. Clinkard said the previous unsustainable levels of growth, slowing economic conditions and lower immigration to cities such as Calgary were contributing to the correction.

New house prices in Calgary rose by a nominal 0.1% from June last year, slowing from levels as high as 35% in June, 2006.

In Saskatoon, the yearly increase was 16.3%, down from 48.4% a year earlier, while annual price growth in Vancouver slowed to 1.8% from 9.6% in June, 2007.

Softer growth was partly offset by strong increases in cities such as Regina, which continued to experience the largest annual gains at 28.5%.

Meanwhile, prices in St. John's, the capital of Newfoundland and Labrador, rose by 22.2% to outpace Saskatoon for the first time since December, 2005.

Growth in Toronto picked up slightly to 3.8% compared with 2.5% a year earlier, while in Montreal, prices rose by 5.6%, up from 3.9% in June, 2007.

(prepared by Alia McMullen/Financial Post )