* Housing construction drops, expected to cool long term
* Economists note monthly volatility, frigid winter weather
* Overall housing market seen slowing after long boom
By Andrea Hopkins
TORONTO, April 8 Canadian housing starts fell
more than expected in March and building permits dropped sharply
in February, according to data released on Tuesday that suggests
the country's robust housing market is cooling.
Volatility in the housing data and an especially hard winter
may explain some of the unexpected weakness in the data,
economists said. But the figures still bolstered expectations
that home building was starting to slow after a boom that
observers have warned is unsustainable.
"The steep decline in housing starts in March was at least
partly weather related, but the bigger picture is an ongoing
cooling of residential construction activity in Canada," BMO
Capital Markets senior economist Robert Kavcic wrote in a
Housing starts fell 17.7 percent in March to a seasonally
adjusted annualized rate of 156,823 units, well below an
economists' forecast for 191,000 units.
February's housing starts were also downwardly revised to
190,639 from the 192,094 originally reported, Canada Mortgage
and Housing Corp (CMHC) said.
A separate report from Statistics Canada showed the value of
building permits tumbled by 11.6 percent in February from
January as construction intentions for multifamily homes fell
sharply and in every province.
The decline was steeper than the 2.7 percent drop forecast
by analysts in a Reuters poll and followed an 8.1 percent
increase in permits issued in January.
Canada escaped the U.S. housing crash that accompanied the
2008-09 financial crisis, and home prices have risen sharply, if
not steadily, in the past five years despite moves by the
federal government to tighten mortgage lending rules.
While some economists have predicted the Canadian market
will crash, most have said they expect sales and new
construction to level off in 2014 and 2015 as mortgage rates
rise, with prices continuing to tick slowly higher.
Still, some the big drop in March housing starts was
shrugged off as being weather-related and yet another bump in
housing data that has been seen as unsteady.
"While we expected a slowdown in residential construction
going forward, such a dramatic move month-on-month brings us
below a pace that would be in-line with household formation,"
CIBC World Markets economist Nick Exarhos wrote in a research
"Given the volatile nature of the series, we wouldn't be
surprised to see some of this lost ground recouped over the
The CMHC has urged analysts to focus on the six-month trend
of housing starts as a better gauge of activity because it
lessens the impact of large monthly swings in condo
construction. The six-month trend slipped to 184,476 units in
March from 191,126 in February, the first time starts have been
below 190,000 in six months.
"Lower starts activity over the remainder of the year
compared to 2013 is anticipated as builders continue to adjust
activity in order to manage inventory levels," Mathieu Laberge,
deputy chief economist at CMHC, said in the report.
Starts of multiple-unit dwellings, typically condos, plunged
26 percent in March.
David Tulk, chief Canada macro strategist at TD Securities,
said the volatility in the series should not overshadow the
signs of a slowing housing sector, even if home-buying ramps
back up in the spring as expected.
"Returning to our longer-term view, while existing home
sales may perk up in the spring as pent-up demand from a dismal
winter is released amid a recent decline in mortgage rates,
construction activity is not expected to see as much of a
sustained rebound," Tulk wrote in a research note.
"As interest rates drift higher over the course of the year,
it is expected that the longer-term trend in housing starts will
ease in keeping with the wider and very familiar theme of a
cooler domestic economy."
Building permits for residential dwellings, closely watched
for signs the housing market is cooling, fell 21 percent in
February from a record high value in January.
The percentage drop was the biggest since January 2009
although the value of the residential permits, at C$3.6 billion
($3.3 billion), matched levels last seen in February 2013.
Permits for multi-family dwellings plummeted 31.5 percent,
again the biggest drop since 2009, with the provinces of Quebec,
British Columbia and Alberta showing the biggest decreases.
Permits for single-family homes fell 12 percent, pulled down
mostly by Alberta, Ontario and British Columbia.
The value of nonresidential building permits gained 6.6
percent in February after a 15.4 percent decline in January.
Permits rose 14.9 percent for institutional buildings, 26.8
percent for industrial buildings and were down 0.3 percent for
(Additional reporting by Leah Schnurr in Toronto, and Louise
Egan and Alex Paterson in Ottawa; Editing by Peter Galloway)