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Real estate: Why new house prices lag old house prices Add to ...

Anyone keeping an eye on new home prices may be suspicious of all this talk of a recovery in the Canadian real estate sector. Prices for new houses have fallen 3.1 per cent in the past year, while resale values have increased by per cent.

What's more, builders in the West are doing whatever they can to get people out of their rentals and into a new condo or townhouse.

They have offered lowered prices, bonuses and incentives to try and motivate buyers - all without that much success.

Yet, it turns out both numbers can be consistent with a recovery: Economists say new-home sales tend to lag existing properties in a recession because the big cities tend to see activity pick up first. And because they aren't building many new houses in downtown Vancouver, buyers first deplete the inventory of used homes before slowly drifting to the suburbs for something new.

"It seems to me that it's higher-end markets in large, established cities that are really cooking, and those tend to be more existing homes than newly built ones," said TD Securities chief economics and rates strategist Eric Lascelles.

"New-home sales have a bit of a history of lagging behind existing home sales over economic cycles, too."

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