November 12, 2009 / 2:25 PM / 10 years ago

UPDATE 2-Canada new home prices jump most since Jan 2008

(Recasts, adds details, byline)

By Louise Egan

OTTAWA, Nov 12 (Reuters) - New home prices in Canada rose in September at their fastest rate in 20 months, highlighting the country’s strong housing market which contrasts with sluggish growth elsewhere in the economy.

Statistics Canada said on Thursday new home prices rose by a sharper-than-expected 0.5 percent in September. The federal agency cited improving markets and consumer confidence as reasons for the jump in the new housing price index, which exceeded market expectations for a 0.2 percent gain.

The 0.5 percent rise topped even the most optimistic of 15 analysts polled by Thomson Reuters.

The year-on-year decline in prices eased in September to 2.7 percent from a 3.1 percent decline in August.

“Real estate has been the economic surprise of 2009,” said Stewart Hall, markets strategist at HSBC Canada in a note to clients.

Home sales are above peak levels seen prior to the global financial crisis and recession, which may be explained by pent-up demand, consumer confidence and rock-bottom interest rates, according to Hall.

“Today’s new home price data seems to be pointing to an inflection point,” he said.

Statscan said Vancouver and Ottawa-Gatineau led the gains with hikes of 1.4 percent and 1 percent, respectively. The largest decline was in Windsor, Ontario.

Canada’s housing market slumped during the recession, which is believed to have ended in the third quarter, but recent data suggest the sector is one of the economy’s strongest in the recovery phase.

Permits for housing construction in September surged 9.4 percent and the federal housing agency CMHC this month predicted a 26 percent rise in housing starts next year in Toronto, the country’s most populous city.

But other economic data has cast doubt on the speed of economic recovery and on the Bank of Canada’s projection of annualized growth of 2 percent in the third quarter.

Net exports are expected to continue to drag on the economy for some time. The median forecast in a Thomson Reuters poll is for a merchandise trade deficit of C$1.75 billion in September. Statscan will release the trade figures on Friday at 8:30 a.m. (1330 GMT). (Editing by James Dalgleish)

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