By: Larry MacDonald

House prices continue to deflate in Canada. They fell 5.8% during the 12 months to March, according to the Teranet–National Bank National Composite House Price Index. Last month the 12-month decline was 4.1%.

Calgary is no longer leading the trend downward. That honour now belongs to Vancouver, which dropped 9.6%. Next came Calgary (−8.4%), Toronto (−6.9%) and Halifax (−0.8%). Just two cities managed to stay in positive territory: Montreal (2.9%) and Ottawa (1.0%).

All cities in the index are down from their peak levels. Calgary, Vancouver and Toronto are off their peaks by more than 10%.  This is beginning to look like a U.S.-style retrenchment — only with a lag of 12 to 18 months. For more detail, see the charts ( from housepriceindex.ca) below.

Much has been made of the resiliency of Canadian banks in the midst of the global financial meltdown. But was it, in part, based on a delayed tumble in house prices? Now that the Canadian market is beginning to resemble the U.S. market, will Canadian banks be able to keep a stiff upper lip?

National level