TODD KOROL
The price of a new home in Canada edged down in July for the first time in more than a year and fewer were built in August, evidence that a real estate slowdown seen this summer in the resale market is beginning to bleed into the new home sector.
Statistics Canada reported Thursday that its new housing price index fell for the first time in 13 months, declining 0.1 per cent in July from its level in June. That reversed what was seen between May and June, when new house prices rose 0.1 per cent.
Reinforcing that trend, the annualized rate of housing starts dropped three per cent in August compared to July, according to the Canada Mortgage and Housing Corp., to 183,300 from 188,900. Both single and multiple-dwelling starts dropped during the month.
And Canadians should expect further signs of cooling across Canada's housing market, said Bank of Montreal economist Benjamin Reitzes.
"That would be the slowest pace of homebuilding so far this year, though in line with long-run household formation," Reitzes wrote.
"A lack of pent-up demand should see the high-priced housing market cool further this winter, though we don't expect it to freeze."
StatsCan blamed the price declines partly on the introduction of the Harmonized Sales Tax in July in the hot housing markets of British Columbia and Ontario, adding tax to real estate services that were previously excluded from provincial levies.
The agency noted that July new home prices were still 2.9 per cent higher than they were in July 2009. But that was lower than the 3.3 per cent price increase seen in June compared to a year earlier, suggesting that the pace of increases is slowing even though prices could remain relatively high for some time.
Resale home activity fell in July - down 6.8 per cent from June and a whopping 30 per cent from a year earlier, according to the most recent figures from the Canadian Real Estate Association.
That there is a decline in new housing starts, which usually lag a cooling trend by about six months, indicates that builders are slowing down construction activity as they see demand falling, to avoid a creating a glut of unsold houses on the market.
Home sales began to drop off this spring, normally one of the busiest times for activity in the market, following months of unsustainable robust activity that led Canada's economy out of recession.
As consumers began to feel more confident about spending, many rushed into the market during the last quarter of 2009 and the first quarter of the year to beat mortgage rate hikes, the HST and mortgage qualification changes in April.
That created a market that strongly favoured sellers who could raise the price of their homes far above asking price and buyers were willing to engage in bidding wars and pay exorbitant prices.
Sky high house prices have persisted for months, sparking some fears that Canada's housing market could enter a dangerous bubble that could burst at any time and create a crisis similar to that the U.S. is facing.
However, the market has now returned to one that is balanced between buyers and sellers.
Economists say it will remain that way, with some slight price declines- and avoid any sharp market correction in which homeowners see the price of their home plunge.