Canada New House Prices Surge for Second Straight Month

Canadian new house prices surged for a second straight month in May, driven by gains in the frothy Toronto and Vancouver markets.

Vancouver's new-house prices rose at their fastest pace in a decade. Meanwhile, other markets surrounding Toronto also recorded healthy gains, in another sign buyers who can't afford homes in Canada's biggest city are purchasing real estate elsewhere in the province of Ontario -- and, in turn, driving up costs in those communities.

Canada's new housing price index increased 0.7% in May on a month-over-month basis, Statistics Canada said Thursday. Market expectations were for a smaller 0.3% gain, according to economists at Royal Bank of Canada.

May's gain follows the previous month's 0.8% increase in the new-house price index.

On a 12-month basis, Canadian new house prices increased 3.8% in May.

The new-house price data from Statistics Canada cover single-dwelling, semidetached and row houses. The report doesn't incorporate prices for newly built condominium units.

Elevated housing-price gains, especially in Toronto and Vancouver, are viewed as a possible threat to Canada's financial system, as it is forcing people to carry heavier debt loads to own a home. The Bank of Canada has warned house-price gains in Toronto, which recently hit 30% on a one-year basis, weren't supported by economic fundamentals.

Federal and provincial authorities have introduced a series of nonrate tools to cool down housing, and on Wednesday the Bank of Canada raised its benchmark interest rate for the first time in seven years. The central bank said the rate rise would "reinforce" efforts to contain the risk posed by frothy housing and record household debt.

The data agency said Toronto's month-over-month gain in new house prices of 1.1% was the biggest contributor to the national increase. Builders attributed higher prices to market conditions, land shortages and higher constructions costs.

Vancouver's new-house prices rose 2.2% in May.

Meanwhile, there were noteworthy gains in markets in southern Ontario, such as Guelph, up 1.7%; London, up 1.5%; and the St. Catharines-Niagara region, up 0.9%.

Write to Paul Vieira at paul.vieira@wsj.com

(END) Dow Jones Newswires

July 13, 2017 09:13 ET (13:13 GMT)