City’s price index is up 7.9% year over year, Statistics Canada reports
Sun
The market for new houses remains strong in Vancouver, with Statistics Canada’s new housing price index rising 2.5 per cent from July to August and 7.9 per cent year over year.
Victoria, however, showed much smaller gains. The July-August index gain in the provincial capital was just 0.7 per cent, while the year-over year increase was 1.7 per cent.
Nationally, however, prices for new homes are rising at their fastest pace since the late 1980s housing boom, which some analysts warn will stoke inflation concerns at the Bank of Canada.
The August increase, largely driven by gains in Western Canada, especially Alberta and B.C., was also greater than analysts had expected, noted BMO Capital Markets economist Michael Gregory.
The 1.5-per-cent national surge in prices during the month left them 12.1 per cent above their year earlier.
The Bank of Canada only last month warned surging home prices pose the main inflation risk, Gregory noted.
Prices in Calgary were up a whopping 60.6 per cent from a year ago, and in Edmonton by 37.8, Statistics Canada said.
However, year-over-year price increases in several other western cities were also nearly into double-digits, including those in Regina, Saskatoon, Winnipeg and Vancouver.
“This hints that pressures might be rippling from the Alberta epicentre,” Gregory said.
Ted Carmichael, economist at J.P. Morgan, said the surge in home prices will also eventually spill over into other price increases.
“The rise in new house prices will gradually feed into the consumer price index for shelter, putting steady upward pressure on core services inflation,” Carmichael said.
The news of the continuing gains in housing in prices, while exaggerated by the surge in Alberta and to a lesser extent other western cities, was surprising in that analysts have long been anticipating the housing market to cool, and the report followed news earlier this week of a greater-than-expected 2.4-per-cent fall in the pace of housing construction starts last month.
“One may suspect speculative churning if prices and mortgage activity are picking up even though starts are falling,” said Carl Weinberg, head of High Frequency Economics, a U.S.-based economic think-tank. “As demand cools in the housing sector so should prices.”
However, most analysts here doubt that there will be any major retreat in housing prices in Canada, as has happened in the U.S., where there are still concerns the bursting of the housing bubble could result in serious economic slowdown or even recession.
“The contrast between the busting U.S. housing market and the solid Canadian one grows sharper by the day,” said Merrill Lynch economist David Wolf, calculating that even excluding the increases in Alberta, new housing prices are still rising at a smart annual clip of more than 6.3 per cent.
“The contrast in new house price trends lines up with divergences in the resale home market and residential construction activity to demonstrate that Canada’s housing market is on a very different path than the U.S.” Wolf said. “We expect that Canada’s resiliency here will translate ahead to more visible divergences in consumer spending and overall economic growth.” News Service; with files from Vancouver Sun
© The Vancouver Sun 2006
