UPDATE 1-Canadian housing starts rise in July, bucking forecasts

Mon Aug 11, 2014 10:40am EDT

(Adds regional details, economists' comments)

By Andrea Hopkins

TORONTO Aug 11 (Reuters) - Canadian housing starts bucked forecasts and rose in July, data on Monday showed, but analysts said the recent resumption of the housing market's upward drive is likely to falter if mortgage rates rise as expected heading into 2015.

Canada Mortgage and Housing Corp said the seasonally adjusted annualized rate of housing starts rose to 200,098 last month from a upwardly revised 198,665 units in June.

The increase in July, the fourth consecutive month in which starts were near the 200,000 mark, topped analysts' forecasts for 193,000. June starts were originally reported as 198,185.

The rise was driven by a 4.7 percent increase in single-unit starts, while multiple units, typically condominiums, dipped 2.0 percent.

"Overall, housing looks to be on a slightly upward trend again, one that could see it revert to a modest growth contributor for a while, after posting negative contributions to GDP growth of late," Avery Shenfeld, chief economist at CIBC World Markets, said in a research note.

"But we have been at lofty levels relative to demographic demand, and as a result, it's unlikely that homebuilding will be a growth contributor in 2015."

The fourth straight month of homebuilding strength came after a slide of nearly 10 percent in the first three months of the year, when cold temperatures and icy conditions sideswiped builders. Analysts say the surge is unlikely to last.

"We view the recent acceleration in starts from their local low of 157,000 in March as consistent with both a return to seasonal temperatures following an inclement winter and spring and a renewed push lower in mortgage rates," David Tulk, chief Canada macro strategist at TD Securities, said in a note.

"This latter trend should be reversed over the remainder of the year and is expected to slow the housing market heading into 2015."

The rise in single-unit starts to a rate of 67,000 marks the highest level since September 2012, Tulk said.

Canada's housing market has consistently defied expectations for a slowdown or crash. Mortgage rates remain low and borrowers are taking on near record levels of household debt to get into the market.

July's strength was led by housing starts in Ontario, the country's most populous province, and in Atlantic Canada, the smallest regional market, with declines elsewhere. (Additional reporting by Leah Schnurr Editing by W Simon; and Peter Galloway)

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