Canada’s home prices weaken in September

A new survey says Canadian home prices weakened in September as a change in mortgage rules introduced in the summer appeared to keep some buyers out of the market.

The Teranet-National Bank National Composite House Price Index released Wednesday shows that home prices fell 0.4 per cent in September from the previous month.

The drop was spread across six of the 11 Canadian cities in the study, with Victoria facing the steepest decline of 1.3 per cent.

Prices fell in Vancouver, down 1.2 per cent, and Ottawa, down 0.8 per cent.

Other Canadian cities showing weakness were Montreal (down 0.6 per cent), Edmonton (down 0.7 per cent) and Victoria (1.3 per cent).

On the upside was Toronto, rising 0.1 per cent, while both Calgary and Halifax rose 0.5 per cent. Hamilton increased 0.3 per cent in September from August.

On a national level, home prices are still 3.6 per cent higher than they were a year earlier.

The report offered further evidence of the summertime slowdown of the domestic economy, as well as the impact of mortgage regulations that were introduced by Finance Minister Jim Flaherty in July.

Under the new rules, the maximum amortization period for government-insured mortgages would be reduced to 25 years from 30 years.

National Bank senior economist Marc Pinsonneault said in a report that the regulation changes “undoubtedly contributed to cool the market.”

But he also noted that third-quarter home sales for the cities in the survey fell eight per cent from the previous three month period, which could be a harbinger for lower house prices next year.

“Price declines have occurred outside recessions when sales dropped a few quarters in a row, even if market conditions were overall balanced. We could see a repeat of that,” Pinsonneault said.

“In our view, if sales continue to decline, a cumulative price drop of around five per cent is likely in a soft-landing scenario for the Canadian home resale market.”