UPDATE 2-Canada housing starts bounce higher in June

Tue Jul 10, 2012 12:15pm EDT

* Housing starts accelerate, contrary to expectations

* CMHC sees slowdown later in year

* Prices increased in Q2, seen 3.2 pct higher at year end

By Andrea Hopkins

TORONTO, July 10 (Reuters) - Canadian housing starts climbed unexpectedly in June as multiple urban starts in Quebec and British Columbia bounced higher, but homebuilding is still expected to slow as the year progresses, Canada Mortgage and Housing Corp said on Tuesday.

The seasonally adjusted annualized rate of housing starts surged to 222,700 units in June, compared with an upwardly revised rate of 217,400 units in May. The May figure was initially reported as 211,400 units.

The bounce bucked expectations for a slowing in housing construction - analysts in a Reuters poll had expected 205,000 starts in June.

"We thought the data would be above consensus given a clear strengthening in the latest building permits reading, and today's starts print confirmed that homebuilding is showing no signs of cooling off yet," CIBC World Markets economist Emanuella Enenajor said in a research note.

"Today's data suggest homebuilding could be a contributor to growth in the second quarter, and the current low rate environment is continuing to support already elevated housing construction activity, namely in the condo/multi-family segment."

Canada's hot housing market has sparked fears of a bubble, particularly in Toronto, Canada's largest city, where low interest rates have driven a condominium building boom and double-digit annual price increases for existing homes.

Mindful of the U.S. housing boom that was left unchecked until it burst, the Canadian government moved last month to tighten conditions for both homebuyers and mortgage lenders in a bid to deflate a possible bubble before it pops.

Separate data showed the average price of a home in Canada increased between 3.3 and 5.5 percent in the second quarter of 2012 compared to a year earlier, according to the Royal LePage House Price Survey.

By the end of 2012, Royal LePage expects national average prices to be 3.2 percent higher than in the same period of 2011.

"We have had three years of solid house price appreciation in almost all regions of the country," Phil Soper, president and CEO of Royal LePage Real Estate Services, said in a statement.

"Confidence in Canada's real estate market is sound, but home prices cannot grow faster than salaries and the underlying economy indefinitely," he added.

In the second quarter, the price of standard two-story homes rose 4.7 percent year-over-year to C$408,423 ($400,100), while detached bungalows increased 5.5 percent to $376,311. Average prices for standard condominiums increased 3.3 percent to $245,825, the survey showed.

But signs from across the country clearly indicated that the national housing market was at a turning point, with some major regions continuing to grow unabated while others peaked and began to pull back for the first time in three years, according to Royal LePage.

Housing starts is a volatile data set, but the level remains close to the six-month average, according to the CMHC.

"CMHC still expects the pace of housing starts to moderate as the year progresses," Mathieu Laberge, Deputy Chief Economist at CMHC's Market Analysis Centre, said in a statement.

For some markets, CMHC uses a moving average to complement the monthly rate to account for swings in monthly estimates. It said housing starts were trending at 218,500 units in June.

The seasonally adjusted annual rate of urban starts increased 2.6 percent to 199,500 units in June. Urban single starts slipped 0.3 percent to 67,500 units, while multiple urban starts jumped 4.1 percent to 132,000 units.

June's seasonally adjusted annual rate of urban starts increased 7.7 percent in Atlantic Canada, 17.3 percent in Quebec and 31.2 percent in British Columbia. Urban starts fell 6.9 percent in the Prairies and 9 percent in Ontario.

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