Source: The Canadian Press

15:10

Sunny Freeman

The price of a new Canadian home continued to rise in November, Statistics Canada reported Wednesday, but more recent data showing a decline in construction activity indicates the trend may turn downward this year.

Statistics Canada’s New Housing Price Index rose 0.3% in November after a 0.1% advance in October, largely due to higher building costs.

However, CMHC reported Tuesday that housing starts fell to an annualized rate of 171,500 last month, well down from 198,200 in November — an unexpectedly large number bolstered by urban multiple-dwelling starts in Ontario. Recent reports suggest that housing starts will follow a downward track toward 170,000, a number that many believe is the sustainable level for new homes in Canada, down from an estimated 192,500 units in 2010.

New home prices usually soften following a drop in construction activity, which itself mirrors but lags trends in the resale housing market, as builders slow down to avoid a glut of unsold homes on the market.

Canada’s resale market was exceptionally hot last winter but cooled significantly in the spring and summer. It bottomed out in July with the most recent data showing three consecutive monthly increases since.

John Andrew, a Queen’s University professor who specializes in real estate, said November’s data suggests that builders had not yet felt pressure to lower prices.

New home prices should normalize given that sales and prices of resale homes have been stabilizing in recent months, following a year of volatility, he said.

“This (stabilization) is mainly due to persistent low interest rates,” Andrew said.

“However, two risks remain worrisome for both new and resale home prices: the inevitable rise of mortgage rates and alarmingly high (and rising) levels of consumer debt.”

Economists and officials have been warning Canadians against taking on too much debt after many rushed to buy houses while variable mortgage rates, which are tied to the Bank of Canada’s overnight interest rate, were near historic lows.

The Bank of Canada’s decision to increase its policy rate three times last year, to the current 1.0% from the ultra-low of 0.25% during the recession, has increased the cost of carrying a variable mortgage.

Canada’s central bank has kept its overnight rate unchanged for several months but has indicated to expects to begin hiking it again when the time is right.

Royal LePage real estate brokerage predicted last week that average home prices will rise 3% to $348,600 in 2011, driven largely by a rush to buy in the first half of the year in advance of mortgage rate hikes in the second half.

It said average house prices rose between 3.9% and 4.6% in the fourth quarter of 2010, while price appreciation is expected to continue a moderate and steady climb throughout the current year.

Statistics Canada said the New Housing Price Index was up 2.3% in November after a 2.5% increase in October.

Prices increased the most in St. John’s, N.L. (up 4.2%), followed by Ottawa–Gatineau (1.6) and Halifax (1.2).

The largest price declines were recorded in the Ontario cities of Windsor (down 1.8%) and St. Catharines–Niagara (down 1.1), followed by Charlottetown and Victoria (both down 0.4).