By Virginia Galt – Globe and Mail

The price of new homes in Canada increased by 2.1% in September on a year-over-year basis, a slower pace than the 2.3% advance in August but still slightly ahead of economists’ expectations.

On a monthly basis, new housing prices rose a bare 0.1% between August and September.

However, the bloom was off in the Edmonton and Calgary housing markets.

“Edmonton recorded a 12-month drop of 5.8%, which was the largest annual decline since July, 1985, while prices in Calgary declined 1.2%,” Statistics Canada reported Monday.

The Canadian real estate market will be shielded in 2009 by the more cautious behaviour exhibited by industry players compared to those in the market south of the border, with Vancouver ranked as the city to watch for real estate investment, according to a new PricewaterhouseCoopers and Urban Land Institute report.

The report said it’s currently a “moderately good time” to sell property, with western provinces boasting the strongest growth trends and lowest vacancies in North America.

“U.S. housing woes haven’t extended to Canada, where banks and regulators have managed the excessive mortgage lending practices of our neighbours to the south,” said PwC partner Frank Magliocco in a statement. “Property markets, including housing, track at or near equilibrium, with high occupancies and controlled development. We always get caught up in U.S. trends, but given our strong fundamentals they shouldn’t affect us to the same magnitude.”

The percentage of firms who responded to the survey who said they had good prospects for profitability remains high, with 35.8% saying they had “very good” prospects and 22.4% saying they had “excellent” opportunities for profitability. However, the report noted that those numbers are lower than last year, when 38.5% said they had “very good” prospects while 23.8% said opportunities were “excellent.”

Meanwhile, while credit tightness will likely mean it will cost more to get financing even in Canada, the report said capital has “remained disciplined” and should steady in 2009.

“In fact, Canada ranks third in the world for a moderate to high increase in the availability of capital for real estate,” said Chris Potter, who is also a PwC partner.

The report said industrial real estate will be the strongest category next year, although all sectors will show strength, including housing. However, while the home sale market will hold steady, new housing development is expected to cool, the study noted.

Across Canada’s top real estate markets, Vancouver was named as the highest-rated city for 2009, with Calgary and Edmonton also receiving high ratings for “investment prospects, development and for-sale housing.” The report also named Ottawa as one of the markets with a fairly strong score.

Out east, however, the property markets appear to be weak, with the report warning investors to be cautious when looking into the Maritime markets, except if they are “knowledgeable about the specific centres in this area.”

“In Saskatoon, the year-over-year increase was 5.5%, once again confirming a trend of deceleration in this city. One a month-over-month basis, new housing prices decreased 2.1% as Saskatoon builders continued to report difficult market conditions,” Statscan said.

On the West Coast, the 12-month increase for Vancouver was 1.4% and in Victoria, contractors’ selling prices increased 0.2% year-over-year, up from a 0.3% decline in August. New home prices were 4.3% higher in Ottawa-Gatineau, and 3% higher in Toronto and Oshawa, Ont.

In Quebec, new home prices were up 6.1%, while Montreal prices increased by 4.8%.

Bank of Montreal economist Douglas Porter had expected that, overall, new home prices would moderate to 2% year over year. He had suggested, as well, that new housing starts in October might slip below the 200,000 mark “as building permits are fading and builders have got to react to the steep slowdown in sales at some point.”

However, Canada Mortgage and Housing Corp. reported Monday that housing starts remained relatively strong, declining by 3.1% to 211,800 units in October from 218,600 in September.

“Housing starts remained strong in October and are consistent with our new home construction forecast for 2008,” Bob Dugan, Canada Mortgage and Housing Corp. economist Bob Dugan said in releasing the October figures.

“The slight decrease in housing starts is the result of declines in both single-detached and multiple starts in Ontario,” Mr. Dugan said.

For the first 10 months of 2008, actual starts in the rural and urban areas combined were down an estimated 1.6% from the same period last year.

The seasonally adjusted annual rate of urban starts was down 4.2% in October from the previous month. The biggest drop was in the number of starts for multiple-dwelling units, down 6% to 115,300. Urban single starts were down 1.1% to 69,300 in October.

Housing starts in urban centres were up in Quebec and Atlantic Canada, but down in British Columbia, the Prairies and Ontario.

Royal Bank of Canada economist Paul Ferley said in a research note that expectations had been for a “more pronounced drop” in overall housing starts across Canada.

The month-over-month decline is not surprising, given “the deteriorating housing affordability that commenced last year,” Mr. Ferley said, although the pace of the decline still remains “surprisingly muted.”

However, he added, tight credit conditions are expected to put “downward pressure on new construction through next year, with starts expected to average close to 180,000 in 2009.”

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