By Andrea Hopkins
TORONTO, June 8 Canadian housing starts slowed
as expected in May after a red-hot April, retreating to the
average of the last six months in a sign the nation's bubbling
housing market is beginning to cool, analysts on Friday.
The seasonally adjusted annualized rate of housing starts
was 211,400 units, compared with a 243,800-unit pace in April,
according to a report by the Canada Mortgage and Housing Corp.
The April figure was revised down from 244,900 units reported
The number of starts in May was just below the 212,000
median forecast of analysts in a Reuters poll.
"As anticipated, the pace of housing starts observed in
April was not sustained in May. In fact, the pace in May was
more in line with the average over the last six months," said
Mathieu Laberge, deputy chief economist at CMHC.
"Although some ups and downs are likely to continue in the
months ahead, the pace of housing starts should trend lower as
the year progresses," Laberge said in a statement.
The slowdown was led by a decline in multiple-family urban
starts, which fell 20.7 percent to a rate of 125,300 units,
while urban single starts decreased 4.2 percent to 64,300 units.
The seasonally adjusted annual rate of urban starts
decreased by 15.8 percent to 189,600 units in May.
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 in existing home sales.
While groundbreaking remains at a historically high level,
May's slowdown in new home construction is likely the start of a
cooling trend, economists said.
"Today's figure still leaves overall starts up 11.4 percent
from the year-earlier level. Although starts are still running
at a solid pace even with the latest month's largely-as-expected
decline, we expect to see further signs of cooling as pent-up
demand is exhausted with affordability issues constraining
potential buyers," Peter Buchanan, senior economist at CIBC
World Markets, said in a research note.
But David Tulk, chief Canadian Macro Strategist at TD
Securities, said the housing starts series is a volatile one and
he is not convinced even heightened rhetoric about household
debt and hot housing from the Bank of Canada has the power to
cool Canadian real estate amid ultra-low borrowing costs.
"Looking through this month-to-month volatility reveals a
three- and six-month trend in headline starts at 223,000 and
213,000 respectively, both well above the demographically
supported level of 180,000 annualized units," Tulk said.
"This fundamental momentum in construction activity is
entirely consistent with a low interest rate environment
motivating builders to accelerate new projects."
May's seasonally adjusted annual rate of urban starts
decreased by 35.8 percent in Québec, by 18.3 percent in Ontario,
and by 7.7 percent in the Prairies. Urban starts increased by
6.4 percent in Atlantic Canada and by 20.9 percent in British
Columbia. In each region, the decrease or increase was mainly
due to changes in multiple starts.
The Bank of Canada has kept the target for its overnight
official interest rate at 1.0 percent in a bid to support
economic growth amid global woes. While it has hinted higher
rates may be on the horizon, many economists do not believe
rates will rise until the fall of 2012 or well into 2013,
leaving borrowing costs low for home buyers and builders.
"Simply put, the longer that the overnight rate remains at
its exceptionally accommodative level, the greater the challenge
the Bank will face in trying to manage the resulting increase in
the housing market and household leverage," Tulk said.