UPDATE 1-Canadian housing starts unexpectedly rise in June

Wed Jul 9, 2014 10:13am EDT

(Adds economist, analyst comment; regional details)

By Andrea Hopkins

TORONTO, July 9 (Reuters) - Canadian housing starts rose in June, bucking expectations for a modest slowdown in the month and suggesting the building sector added to economic growth in the second quarter after a brutal winter, data released on Wednesday showed.

A report from the Canada Mortgage and Housing Corp showed the seasonally-adjusted annualized rate of housing starts rose to 198,185 last month from a downwardly revised 196,993 units in May.

That gain, the third consecutive month with starts close to the 200,000 mark, surpassed analysts' forecasts for a decline to 189,000. May was originally reported as 198,324.

The bounceback in the second quarter followed a slide of nearly 10 percent in the first three months of the year, when cold temperatures and icy conditions sideswiped builders.

"Smoothing out the very volatile and weather-impacted first half of the year, starts averaged 186,000 through June, roughly in-line with demographic demand. In all likelihood, activity will gravitate back toward that level, or slightly lower, thorough the remainder of the year," BMO Capital Markets senior economist Robert Kavcic wrote in a research note.

Economists said the report suggests construction will boost gross domestic product (GDP) growth in the second quarter.

"(It) gives us more confidence that the weakness seen in April GDP due to a drop in construction was indeed transitory, and that for the second quarter as a whole, the building sector - along with other economic activity - will show signs of heating up," said Nick Exarhos, an economist at CIBC World Markets.

CMHC Chief Economist Bob Dugan said the trend in housing starts has been stable since March, down from the range of 191,000 to 196,000 seen between September 2013 and February 2014.

"This is in line with CMHC's analysis indicating that the new home construction market in Canada is headed for a soft landing in 2014," Dugan said in the report.

The report showed single-unit starts rose 0.9 percent while multiple-units, typically condominiums, rose 0.1 percent. Canada's condo market has cooled since 2012 after a multi-year boom, and is widely expected to cool further as unsold inventory comes onto the market.

"We expect starts to ease to 185,000 annualized units in the fourth quarter, as elevated inventory levels and oncoming supply dampen construction activity. Next year, we expect that interest rate pressures will be more acute, so housing construction should slip further," Mazen Issa, senior Canada macro strategist at TD Securities, said in a research note.

June's strength in housing starts was led by the prairie provinces of Alberta, Saskatchewan and Manitoba, which are benefiting from a booming resources sector and where an influx of workers has meant a shortage of housing in several cities.

Starts declined in Quebec, Ontario and British Columbia, and were up in the small Atlantic market. (Additional reporting by Leah Schnurr; Editing by W Simon and Nick Zieminski)

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