Have Canadian and U. S. markets stabilized?    

North and south of the border this week, analysts engaged in guarded talk of housing markets possibly, just maybe, turning a corner. Following eight straight monthly declines, home prices in Toronto finally rose 2% in May from a month earlier, according to the Teranet-National Bank House Price Index. While comparing May’s index with the same month last year shows Toronto house prices were down 6.5%, it is a shade under the 6.9% drop in the national composite index of Canadian home prices.

Following eight straight monthly declines, home prices in Toronto finally rose 2% in May from a month earlier.

Following eight straight monthly declines, home prices in Toronto finally rose 2% in May from a month earlie

"It was the sixth consecutive 12-month decline. The index is now down 8.9% from its peak of last August," noted Marc Pinsonneault, senior economist with National Bank Financial Group in a release. "However, its run of eight straight monthly declines ended in May with a 0.7% rise from April."

The repeat index looks at six metropolitan areas across the country. The May home price index for Halifax rose 1.3%, Montreal rose 1.5%, and Ottawa inched up 0.7%. It was a different story in the West, as the markets in Calgary and Vancouver continued their correction, each posting an 11th straight monthly decline.

Comparing the May numbers with those of a year earlier, four out of six of the composite city indices recorded declines. In Vancouver, the Teranet National Bank home price index was down 11.8% in May compared with the same month last year. In Calgary, prices were down 12.2%. The nation’s capital saw prices down just 0.1% on a year earlier, but Montreal and Halifax both posted increases of 2.3% and 1% respectively. Montreal is the sole city yet to experience a year-on-year fall in the index.

"This report does offer some hope that the correction in Canadian home prices may be nearing an end, further corroborating the other housing sector indicators that are conveying a similar message," notes Millan Mulraine, economics strategist at TD Securities.

South of the border, according to the S&P Case Schiller 10-and 20-city indices, year-on-year home prices are still declining but the rate of decline is lessening. In May the 10-and 20-city composite indices fell 16.8% and 17.1%, respectively, compared with the same month in 2008.

"Looking at the monthly data, 13 of the 20 metro areas reported positive returns; and the 10-city and 20-city composites reported positive returns for the first time since the summer of 2006," noted David M. Blitzer, chairman of the index committee at Standard & Poor’s in a release. "These are the first time we have seen broad increases in home prices in 34 months. This could be an indication that home price declines are finally stabilizing".

While cautioning against too much optimism, analysts see the index as a further sign the U. S. housing market may be headed out of the doldrums.

"For the first time in nearly three years, this home price metric registered a monthly gain -- assisted by a seasonal boost. The result corroborates the activity indicators, all pointing to stabilization in the recovery-critical housing sector," notes Michael Gregory, senior economist at BMO Capital Markets. "Given that it’s seasonally adjusted and a broad repeat-sales metric, the S&P/C-S index is ideal for indicating the inevitable turning point in prices."

Another positive housing sign out this week was the above-expectations 11% rise in U. S. new homes sales in June, hitting an annualized 384,000 units. This was well ahead of analysts’ consensus for a 2.3% improvement.

"New homes continue to fight for the attention of potential buyers, who are torn between the purchase of a new home, and the stock of an existing home or a cheap foreclosed home," notes Jennifer Lee, economist, manager at BMO Capital Markets. "But homebuilders’ confidence is generally strengthening, particularly with their expectations of how the market will play out over the next six months or so, which suggests the bottom in the housing market has been reached."