WRAPUP 1-Canada housing prices bounce higher but no crash seen

Thu Sep 12, 2013 11:52am EDT

* Teranet housing price index at record high in August
    * Statscan new housing price index rises 0.2 pct in July
    * Statscan index up 1.9 pct on year
    * Housing market stays strong, outlook stable

    By Louise Egan
    OTTAWA, Sept 12 (Reuters) - Canadian housing prices climbed
to a record high in August, according to a price index released
on Thursday that suggested the property market, long the
country's biggest engine of economic growth, remains strong but
not frothy.
    Home prices rose in August from what was already a record
high in July, but the annual price increase remained subdued,
the Teranet-National Bank Composite House Price Index showed.
    The index, which measures price changes for repeat sales of
single-family homes, showed prices rose 0.6 percent in August
from a month earlier, below the seasonal norm.
    Prices rose just 2.3 percent from a year earlier, a slight
acceleration from July. The annualized gains for the last five
months have been the smallest since November 2009, and well
below the U.S. equivalent, which was up 12 percent in June.
    "The demographics and the low interest rates at the moment
are supportive of the market," said Marc Pinsonneault, senior
economist at National Bank Financial.
    Toronto and Calgary, Canada's oil capital, led the way for
price hikes. But prices dropped in five of the 11 markets
surveyed across the country, which Pinsonneault said was hardly
evidence of overheating. 
    "We don't see the market having a collapse similar to the
one they had in the U.S.," he said.
    The housing market has been a focal point for Canadian
policymakers since a boom that followed the 2008-09 recession. A
prolonged period of low borrowing costs and rising house prices
led to record-high household debt and rising fears of a property
bubble that could pop and give way to a financial disruption.  
    In response, the government tightened mortgage lending rules
four times, and after the latest intervention, in July 2012, the
property market cooled markedly. The market bounced back this
spring and has since appeared to stabilize.  
    But housing is still seen as overvalued in some areas,
spurring the question of whether any downturn will be sudden or
gradual. Most economists at Canada's major banks see the market
staying stable in the medium term.    
    Separately, Statistics Canada said on Thursday its new
housing price index climbed 0.2 percent in July from June,
beating market expectations of a 0.1 percent gain and bringing
the year-on-year increase to 1.9 percent.
        
    Calgary saw the biggest 12-month jump in new home prices,
5.8 percent, since December 2007. In Toronto-Oshawa, prices rose
0.3 percent on the month and 2.6 percent on the year.
    Prices rose in 10 cities, fell in six and were unchanged in
five.
    The new housing price index excludes condominiums, which the
government has said are a particular cause for concern because
of overbuilding, especially in Toronto.
    The aggressive rebound in home prices has been accompanied
by a recovery in existing home sales. 
    All told, the impact of Ottawa's crackdown on mortgages
rules has faded, said Mazen Issa, economist at TD Securities.
    Still, mortgage rates have begun to rise, likely dampening
home purchases.
    "We do not see a strong case for rampant home price
appreciation over the medium-term as the backup in mortgage
rates will erode affordability," Issa said. 
    "Moreover, sales activity is likely to slow as household
balance sheets are stretched and the increase in home prices may
have priced-out potential home buyers," he said.
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