UPDATE 2-Canadian housing starts slow in December

Wed Jan 9, 2013 11:04am EST

Related Topics

* December rate down but tops analysts' average forecast

* Rural starts drop but urban starts stable

* Below trend in all regions except Ontario

By Andrea Hopkins

TORONTO, Jan 9 (Reuters) - Canadian housing starts slowed in December but more gradually than expected as an increase in single-family starts in urban areas softened the sting of a slowdown in multiple-unit and rural ground-breakings, a report on Wednesday said.

Figures published by Canada Mortgage and Housing Corp provided further evidence that Canada's long housing boom had ended, although activity remained robust in the cities of Ontario, the country's most populous province.

Seasonally adjusted, the annual rate of housing starts was 197,976 units in December, down slightly from 201,376 in November but above an average forecast of 195,000 among analysts polled by Reuters.

"Although today's numbers look a bit better than expected, they mark the fourth straight month of slowing in homebuilding activity, suggesting that Canada's once-bustling homebuilding sector is cooling," Emanuella Enenajor, an economist at CIBC World Markets, said in a research note.

The November figure was revised up from the 196,125 units reported previously.

The December numbers capped a strong 2012, with annual starts hitting 215,200, a 11.4 percent increase from 2011 and the third straight annual gain since the recession low in 2009, according to Robert Kavcic, senior economist at BMO Capital Markets.

"However, the year was marked by starkly different performances in the first and second halves - starts surged above 230,000 annualized in the second quarter before falling in five of the last six months of year after stricter mortgage rules weighed on demand," Kavcic said in a research note.

Fearing a bubble after three years of strong growth in sales and prices, the Canadian government tightened rules for mortgage lending as of July 2012, and home sales have begun to slow in many markets.

More slowing in housing starts is expected in 2013, though economists said historically low interest rates may limit the decline.

"If the preliminary evidence that the tighter mortgage regulations introduced in July has slowed demand is sustained, construction activity will slow further heading into the New Year," David Tulk, chief Canada macro strategist at TD Securities, wrote in a research note.

"If instead low interest rates continue to provide an irresistible incentive to prospective buyers and builders, construction will continue to run ahead of demographically supported levels (estimated to be around 185,000). In weighing the balance of risk around these two outcomes, we are biased to see starts remain close to 200,000 units in 2013 before dipping to 185,000 in 2014," Tulk said.

The CMHC said December housing starts were below the six-month trend.

The decrease recorded in December reflected a decline in rural starts, while urban starts remained stable. Housing starts were below their trends in all regions except Ontario, Mathieu Laberge, deputy chief economist at CMHC, said in a statement.

The seasonally adjusted annual rate of urban starts dipped 0.1 percent to 178,870 units, with single urban starts climbing 8.6 percent to 67,419 units and multiple starts -- typically condominiums -- dropping 4.7 percent to 111,451 units.

There was a broad disparity in activity across the country, with Ontario urban starts up 33.4 percent but all other regions down. Urban starts fell 23.9 percent in the Prairies, 11.8 percent in Quebec, 8.2 percent in British Columbia and 1.6 percent in Atlantic Canada.

The seasonally adjusted annual rate of rural starts fell 14.3 percent to 19,106 units from 22,298 units in November.

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