Canadian home prices continued their surprisingly strong ascent in February, but are unlikely to prompt policy-makers to take actions to cool the market at this point.
The average selling price of existing homes that traded hands across the country last month was $406,372, up 10.1 per cent from a year earlier.
The MLS Home Price Index, which seeks to create a more apples-to-apples comparison of prices by accounting for changes in the location or types of homes that are selling, rose 5.1 per cent. That increase, which was driven by rising prices in Calgary and Toronto, outdid the 4.83-per-cent annual increase in January.
Prices maintained their upward trajectory even in the face of a soft winter sales market. Sales ticked up in February after five months in a row of declines. But they were up only 1.9 per cent from a year ago, or 0.3 per cent from January (the latter comparison being seasonally adjusted).
After seeing the latest data, the Canadian Real Estate Board, which represents Realtors and tracks the market by way of the Multiple Listing Service, cut its forecast for sales this year and raised its forecast for average prices.
"The only thing that has not happened yet is a slowing in Canadian home price growth – but that too will likely come," Toronto-Dominion Bank economist Diana Petramala wrote in a research note.
She said that home price growth is being supported in many major markets by a lack of homes for sale, which is giving sellers more bargaining power. But listings should improve as the weather heats up and as potential sellers are drawn into the market by the higher prices.
The expectation that home price growth should cool this year is one of the reasons why policy makers – who are facing international scrutiny as pundits debate just how overheated Canada's market is – are unlikely to act now.
In addition, Bank of Montreal economist Douglas Porter notes that while national price momentum has picked up, the "gains have not been widespread across markets – and that should provide some solace to policy makers."
Finance Minister Jim Flaherty has taken numerous steps to slow the housing market in recent years, amid concerns that home prices and mortgage debt levels were rising too quickly.
Mr. Porter noted that the average national price is being skewed by a rebound in pricey Vancouver. "For a more realistic gauge of price gains, the median city was up about 3per cent year-over-year (i.e. half of the cities are seeing sub-3-per-cent price growth)," he wrote in a research note.
Bank of Montreal economist Robert Kavcic said that unless you're in Calgary or have a detached home in Toronto, chances are your property hasn't actually appreciated anywhere near as much as the 10.1-per-cent jump in the national average over the past year.
The Canadian Real Estate Association is now expecting the national average price to rise 3.8 per cent this year from 2013, to $397,000. It had previously forecast a 2.5-per-cent rise in average prices this year, to $391,000. (It says that the projected average for the year is below February's average because the national average selling price tends to be higher in the early months of the year).
It now anticipates a 1.3-per-cent rise in sales this year, to 463,700 homes. In December, it was forecasting a 3.7-per-cent rise.