New Housing Price Index release

As the recession cools down Canadian housing prices are heating up, according to the latest report by Statistics Canada.

The New Housing Price Index, released on Thursday, found that Canadian home prices rose 0.4 per cent in December 2009 from the previous month. Ottawa-Gatineau saw the largest increase at 0.8 per cent.

“For Ottawa-Gatineau, a good new housing market was the primary competitive factor that contributed to an increase in housing prices in December,” said Neva Dimitrova, a communications officer at Statistics Canada.

Dimitrova said that what they’re seeing is an increase of prospective homebuyers who are stepping into the market, following through, and finalizing home sales.

The national residential average price was $337,410 in December, which is a 19 per cent increase from December 2008. This increase reflects the high degree to which the housing market was skewed downwards in late 2008 as the recession set in and Canadian homebuyers became more hesitant to take on large bank loans, said the Canadian Real Estate Association in a Jan. 15 press release.

The increased demand for housing in Canada is due partly to the Bank of Canada’s near record-low interest rate. Homebuyers are seeking to take advantage of appealingly affordable mortgages, and homebuilders are seizing the opportunity to once again ramp-up construction, said Gregory Klump, the chief economist of the Canadian Real Estate Association.

Another factor boosting home demand in Canada is the Harmonized Sales Tax, or HST, which comes into effect on Canada Day in Ontario and British Columbia.

The HST is a harmonization of the federal and provincial sales tax into a single 13 per cent tax which will extend to cover a range of services previously exempt from the provincial sales tax.

For homebuilders and contractors, the HST translates into increased construction costs which will trickle down to homebuyers who may not be able to afford it.

“The HST will impact affordability … and that is going to encourage a lot of homebuyers to move their purchases up,” said Klump. “Those who were going to buy later will buy now to avoid the HST.”

This could lead to a downward trend in the national sales activity beginning in the second half of this year, he said.

The 3.77 per cent increase in Ottawa property taxes that was approved by city council in January could also damage home affordability and may erode some demand in the local market, said Klump.

However, the Canada Mortgage and Housing Corporation expects that Ottawa-Gatineau, one of the healthiest employment markets in Ontario, will be able to attract external workers and improve its net migration throughout 2010.

Net migration is the total number of people leaving the region subtracted from the number of people moving in. Such a rise would lead to a continued demand for new housing, and  could continue to fan the flames of the Canadian housing market.

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