Nothing can turn an economy sour faster than falling house prices. Yes, they are often a symptom of other problems rather than the primary infection site. However, once begun, the cycle of falling house prices is hard to break. They tend to ratchet downwards. Who wants to buy when the price may go lower? The impact on consumer confidence is brutal.

In the U.S., falling house prices have been widespread in the wake of the sub-prime mortgage fiasco. The latest Case-Shiller numbers indicate a decline of slightly over 10% nationwide. They may still have a ways to go.

Canadians should have a good deal of empathy for their American cousins. In the mid-1990s, the bottom fell out of the housing market in Canada. Starts dropped to only 111,000 units in 1995. Compare that level with the fact that annual starts have been 200,000-plus units for the past six years. In the mid-1990s, house prices in Canada dropped by 20% to 25% in a number of major centres.

There are two main series on house prices in Canada: (1) Statistics Canada’s measure for new homes based on contractors’ selling prices; and (2) the Canadian Real Estate Association’s (CREA) figures on average existing home sales prices, for homes sold through its Multiple Listing Service®. The Canada-wide index of new home prices increased 6.5% in January 2008 versus January 2007. For the same time period, existing home prices, as estimated by CREA, were up 9.6%.

Saskatchewan continues to be the leader among the provinces in terms of home price increases. Saskatoon (+51.7% for “new” and +40.9% for “existing”) and Regina (+25.9% for “new” and +54.8% for “existing”) have both seen big increases. There is a resource-driven energy boom underway in the province, based on wheat, uranium, oil, etc.

In Alberta, home prices in Edmonton appear to be moving ahead a little faster than in Calgary (at least in terms of “new” product), although actual existing house prices are higher on average in the latter city.

Vancouver ($624,000 on average) has the highest existing home prices in the land, by a good margin. Even second place Victoria ($488,000) is well back, with Calgary ($415,000) in third place. By way of comparison, Toronto’s current average is only $382,000. In B.C.’s two major cities − Vancouver and Victoria − existing home prices are moving up faster than new home prices.

House prices are continuing to increase, but only modestly (+2% to +7%), in the major cities in Ontario and Québec. The picture is similar in the Atlantic region, although Halifax (+11.4% for “new” and +4.8% for “existing”) appears to be doing a little better than other urban areas in the region.

Windsor (-0.9% for “new”) may be the only city in the country where house prices are continuing to drop, as the local economy continues to struggle with the adjustments that are taking place in its Ford- and Chrysler-dependent auto sector.

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