New home prices edge higher

ROMA LUCIW

Globe and Mail Update

The price of a new home increased at its slowest pace in nearly a year in September, as prices in Saskatoon rose while gains in Calgary moderated.

Statistics Canada said Thursday the new housing price index rose 0.5 per cent in September from August, below expectations for a 1 per cent rise. Contractors' selling prices were 11.9 per cent above the same month last year.

Saskatoon had the largest price increase with a 4.7-per-cent gain, followed by a 2.8-per-cent rise in Edmonton. New home prices in London and Calgary climbed 1 per cent.

Douglas Porter, the deputy chief economist at BMO Nesbitt Burns, said September's rise was mild. "The fireworks in Alberta seem to be losing a trace of power," he said.
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Rising costs for construction materials and higher labour rates sent home prices higher, Statscan said. In Saskatoon, utility rates and carrying costs rose.

"Also, with the exception of London, where land values remained stable, higher lot prices were evident due to land shortages, city levies and developer increases," the report said. "Strong demand was also a factor in these metropolitan areas."

Charlottetown and St. John's were the only major metropolitan areas to see prices fall, although nine registered no change.

The house-only section of the price index rose 0.5 per cent to sit 12.8 per cent above last September while the land-only component gained 0.6 per cent to 10 per cent above year ago levels.

On a year-over-year basis, Statscan said Calgary posted the gains for new homes at 59.4 per cent. Edmonton was next at 39.6 per cent, followed by Saskatoon, Regina, Winnipeg, and Vancouver.

A series of weak U.S. housing reports have led to mounting speculation that the housing market south of the border is in the midst of slowdown. The housing market in Canada has only started to show signs of slowing, and is still on track to close the year with record growth levels.

Royal Bank of Canada senior economist Dawn Desjardins said the monthly increase was the slowest since Nov. 2005, but the year-over-year rise remains rapid and suggests housing will pressure the inflation rate.

"However, policy-makers appear to be willing to tolerate higher levels of inflation for now banking that a slower pace of economic growth will lead to a moderation in pace of price increase and that the policy rate is consistent with the inflation rate meeting the 2 per cent target over the medium term," she said in a note.