In the midst of more news about the continuing struggles of the U.S. home market, the news from Ottawa last week is that Canadian home prices rose 1.3 per cent in May, their largest monthly gain since last September.

On an annual basis, prices rose 13.6 per cent and are now 4.2 per cent higher than their pre-recession peak. But according to the Teranet-National Bank composite house price index, prices are unlikely to continue at that pace in months ahead.

Canadians should be proud that their lenders, builders, buyers and sellers have managed their real estate market responsibly. Obviously the United States model is flawed. But Canadians shouldn’t be too fast to congratulate themselves, because I sense trouble ahead.

Prices have now advanced for 13 straight months, the Teranet-National Bank composite house price index survey showed. But why? Is there a special reason applicable to the Canadian increases that makes it different from the U.S. one?

The yearly gains have been mostly in Canada’s major urban areas, with Vancouver up 17.1 per cent year over year and Toronto up 16 per cent. Year-over-year prices gained 7.8 per cent in Calgary, 8.5 per cent in Montreal, 11.4 per cent in Ottawa, and 5.6 per cent in Halifax, in the other four city markets surveyed.

According to the article in Canada’s The Financial Post, the Teranet survey differs from other national surveys by focusing solely on price variations in Canada’s six major urban markets. It also filters out such factors as a increase in larger home purchases that can skew average prices. Other reports have already shown price declines, so perhaps the Teranet survey overstates the problem.

For example, senior economist Marc Pinsonneaul noted that there is some indication the slowing has begun: “The number of existing homes sold has declined in each of the three months ending last June, and it did so to a much larger extent than the number of new listings”.

In any event, these are large appreciation numbers by any measure, and are obviously unsustainable. The U.S. boom year numbers were also strongly influenced by advances in major markets, such as that in our Phoenix metropolitan area.

The consistent increases are very similar. Yes, they are more moderate, but ultimately the Canadian market has had above average appreciation compared to historical numbers.

We can only hope that Canadian prudence will prevent the type of “equity killing” plunge that has resulted in values falling 50% and more in some areas of the Valley of the Sun.

You can read more about the Teranet-National Bank report and the Canadian market in The Vancouver Sun www.vancouversun.com/business.

– N. Mark Kramoltz © 2015