Demand remains robust as housing costs continue to rise in Canada

Price increase surprises analysts who have been calling for a slowdown in the housing boom

PUBLISHED : Wednesday, 17 September, 2014, 5:52am
UPDATED : Wednesday, 17 September, 2014, 5:52am

Canadian home prices rose in August and the pace of 12-month appreciation accelerated, a report showed, suggesting robust demand for housing is continuing into the second half of the year.

The Teranet-National Bank Composite House Price Index, which measures price changes for repeat sales of single-family homes, showed national home prices rose 0.8 per cent last month, exceeding the historical average for August.

Prices were up 5 per cent from a year earlier, a pickup from July's 4.9 per cent price gain.

August was the ninth consecutive month in which the composite index did not fall. The price rises, on top of robust housing starts data in the spring and summer, have surprised economists who have been calling for a slowdown in the housing boom.

David Tulk, chief Canada macro strategist at TD Securities, said the report suggests the momentum in the housing market has continued into the second half of the year.

"While a gradual drift higher in interest rates should limit the degree to which housing can continue to increase, a persistent low rate environment will prevent a more pronounced correction," Tulk said in a research note.

"The housing market will also remain on the Bank of Canada's radar and the strength we have seen buttresses the case to resume the withdrawal of stimulus once the improved international backdrop has provided a sufficient lift to net exports," he said.

Canada's central bank is not expected to raise rates until the second half of next year.

Canada escaped the United States housing crash that accompanied the 2008-09 financial crisis, and home prices have risen sharply over the past five years despite moves by the federal government to tighten mortgage lending rules.

The Teranet data showed prices rose last month from July in 10 of 11 cities, led by a 1.8 per cent gain in Winnipeg, a 1.5 per cent gain in Ottawa and a 1.2 per cent rise in Toronto. Prices were down 0.7 per cent in Montreal.

Year-on-year price gains were also seen in 10 cities.

Compared with a year earlier, prices were up 7.9 per cent in Calgary, 4.5 per cent in Edmonton, 0.9 per cent in Halifax, 6.7 per cent in Hamilton, 1.1 per cent in Montreal, 1.2 per cent in Ottawa, 6.7 per cent in Toronto, 6.1 per cent in Vancouver, 2.1 per cent in Victoria and 1.9 per cent in Winnipeg.