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It would now take 5.8 months to sell all of the inventory that’s on the market nationally (at the current level of sales activity), down from six months in each of May, June and July.

jeff mcintosh The Globe and Mail

The Globe's Real Estate Beat offers news and analysis on the Canadian housing market from real estate reporter Tara Perkins. Read more on The Globe's housing page and follow Tara on Twitter @TaraPerkins.

Policy makers in Ottawa have been taking some comfort from signs Canadian home prices have been moderating lately. They shouldn't.

If Toronto-Dominion Bank economist Diana Petramala is correct, home prices might be on their way up again. That would be disappointing news to those in Ottawa who, until recently, were fairly certain they had successfully steered the housing market toward a soft landing. Under that scenario house prices were supposed to slowly lose some steam, rather than go through a major correction. Most economists agree that home prices are inflated, and, coupled with high consumer debt levels, pose a risk to the economy.

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Ms. Petramala's concerns are based on supply.

The Canadian Real Estate Association, which represents realtors and tracks the market by way of the MLS, released data Monday that showed that the number of newly listed homes fell 1.2 per cent from July to August. "Led by Greater Toronto, new supply was down in about 60 per cent of local markets," CREA said.

The national sales-to-new-listings ratio, meanwhile, was 55.5 per cent, up from 53.9 per cent in July. It's the fourth month in a row that it has increased. A ratio between 40 and 60 is considered a sign of a balanced market. Above 60 per cent it's a seller's market. A number of markets in British Columbia, Alberta and Southern Ontario are above 60 per cent. (Royal Bank of Canada economist Robert Hogue points to Calgary, Edmonton, Toronto and Vancouver as markets where sellers have the upper hand in setting prices).

It would now take 5.8 months to sell all of the inventory that's on the market nationally (at the current level of sales activity), down from six months in each of May, June and July.

"The number of homes for sale have not kept up with demand and the market moved more in favour of sellers," Ms. Petramala wrote in a research note. "We continue to be surprised by the lack of listings on the market. The sales-to-listings ratio has moved back to the level reached at the end of last year, when prices were growing 8 per cent to 9 per cent year-over-year. This suggests that following four months of moderation, home-price growth may catch a second wind through the fall months."

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