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Home prices dip in October, annual gains ease

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Canadian home prices fell 0.25 percent from September to October, but are still 3.43 percent higher than this time last year, according to the Teranet-National Bank Composite House Price Index.

The numbers continue the trend of shrinking year-over-year gains in house prices.

While the average price of houses sold can be influenced by a shift in sales towards certain neighbourhoods or types of homes, this index seeks to account for that by, among other things, only including homes that have changed hands at least twice in their history and have not been renovated.

That methodology is similar to the U.S. S&P Case Shiller repeat sales model, and often shows weakness following the peak spring and early summer buying season, economists at Bank of Nova Scotia pointed out in a note Wednesday, prior to the latest numbers.

"In yearly terms that control for such distortions, the pace of price gains has been declining from a post crisis peak of about 12.5 percent year-over-year in mid-2010 to 3.6 percent year-over-year now which is also softer than the seven percent gains being recorded about a year ago," said the note by Scotiabank economist Derek Holt.

"I would look for further weakening in this metric into 2013 as a marked slowdown in the volume of home resales and new condo sales gives way to the next leg of a housing correction by way of a sharp reduction in housing starts into 2013 and price weakness in response to cooling demand and building inventory in several segments."

The Teranet index suggests that house prices have risen by 128 percent since the end of the 1990s, outstripping the gains by the peak of the U.S. cycle.

Royal Bank of Canada economist Robert Hogue noted that Wednesday's figures are similar to those released by the Canadian Real Estate Association last week. CREA's MLS home price index, which also seeks to account for any change in the types of houses that are being sold, rose 3.6 percent from a year ago. That was the slowest rate of increase since May 2011, and marked the sixth straight month that price gains have been shrinking.

"There's going to be some more near-term weakness," Hogue said. He's expecting that the month-over-month declines will stabilize early next year, and that house prices in 2013 will be flat compared to 2012.

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