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For sale sign in Toronto.

Canadian home prices were 1.8 per cent higher in June than a year earlier, the smallest annual gain since November, 2009.

The pace of home price increases has been slowing in the wake of the sharp downturn in home sales that began last summer and has only recently begun abating. But, while home prices aren't rising by as much as they used to, they are rising more than many economists expected.

Indeed, many economists had been expecting prices to dip into negative territory this year, but now say that is now looking less likely given the latest data.

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June's prices are 1 per cent higher than May's. While prices usually rise a bit more than that from May to June, the increase topped economists' expectations at a time when the market is still recuperating from a significant slump.

"It looks like the market is stabilizing and picking up a little bit," says Royal Bank of Canada economist Robert Hogue, who now expects house prices for all of 2013 to be slightly higher than in 2012, rather than slightly lower. "It's a fairly sanguine pricing environment at this stage."

But Mr. Hogue is sticking to his forecast that prices will fall a bit in 2014, when many of the condos that are currently under construction will be completed, putting pressure on prices at a time when interest rates are likely to increase. While Toronto's condo boom is front and centre, a significant number of condos are also under way in Montreal and Vancouver, Mr. Hogue said.

Cities with stronger-than-average price gains in June included Hamilton (at 7 per cent), Quebec City (5.6 per cent), Calgary (5.5 per cent), Winnipeg (3.9 per cent), Toronto (3.6 per cent), Edmonton (3 per cent), and Halifax (2.3 per cent), according to the Teranet-National Bank Index. Montreal (1.3 per cent), Ottawa-Gatineau (1.1 per cent), Victoria (-4.6 per cent) and Vancouver (-2.8 per cent) dragged down the national average.

National Bank economist Marc Pinsonneault said he too is no longer expecting prices to fall this year.

"The rises in May and June were stronger than I was expecting, even if they're not exceptional for that time of year," he said. "We see subdued increases in the next few months."

In a research report, he did warn however that rising mortgage rates could still put a damper on things. "While home resale activity has strengthened in recent months, this resilience may be put to the test given the rapid increase in mortgage rates in June," he wrote.

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