• The Canadian New Housing Price Index (NHPI) was up 0.3% in April, the same rate of increase recorded the previous month.

• The second consecutive 0.3% monthly gain pushed the yearly change in prices up 2.5%, compared with 1.6% in March.

• The largest yearly price increase was recorded in Vancouver at 6.0%, followed by St. John's at 5.9%.

• Builders reported that higher material and labor costs were the key causes for the increases in price between March and April in St. John's, Regina, and Saskatoon.

• Winnipeg, Vancouver, Ottawa, and St. John's recorded increases of 4% or higher in new housing prices from last year.

• Yearly gains in Toronto (2.1%) and Hamilton (0.9%) as well as Halifax (0.7%) fell below the national average, while prices in Victoria, Edmonton, and Charlottetown actually fell, and prices in Montreal rose 2.7%.

• Eighteen out of 21 metropolitan census areas have seen an increase since last year.

Outlook

The moderate increase of the Canadian NHPI in April is not a surprise, given the relatively strong market conditions that have prevailed for a number of months, and a strong pre-buy in advance of the expected hit from the harmonized sales tax to title transfers after June 2010 in the large markets of Ontario and British Columbia.

April was the second consecutive month with an increase of 0.3%; prices have risen consecutively every month since January 2010. As a result, prices in April stood 2.5% higher than they were a year earlier.

In the United States, the Federal Housing Finance Authority purchase-only index was up 0.3% in March, following a decline of 0.4% in February and 0.6% in January. On a yearly basis in the United States, prices were down 2.2% in March.

The Canadian housing market has been relatively strong in the past several quarters, contributing to real GDP growth and gains in construction employment.

Home price increases in Canada moved up to 2.5% on a yearly basis in April compared with 2.2% price declines in the United States in March. Nevertheless, overall price levels in Canada and the United States have tended to converge in the past two years.

Recent data on April existing-home sales already point to a cooling off in the housing market in Canada, and this cooling off is likely to have persisted in May in response to the sharp jump in Canadian mortgage rates.

Beyond the months of May and June, we could well see a substantial cooling for several months in both sales and prices as the harmonized sales tax takes full effect in the large markets of Ontario and British Colombia.