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Canadian housing starts cool in August: CMHC

H.S. Borji
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Canadian housing starts cool in August: CMHC

Canadian housing starts declined more than forecast in August, supporting expectations for a broad cool down in housing activity in the second half of the year.

Groundbreaking last month rose to a seasonally adjusted annual rate of 192,368, following a downwardly revised reading of 199,813 in July, the Canadian Mortgage and Housing Corporation reported today.

The figure was below the median estimate of economists, which called for a decline to 195,500.

August starts pushed the six-month moving average to 189,596.

”The currently elevated level of inventory of newly completed and unoccupied condominiums, and units under construction, supports CMHC’s view that condominium starts will likely see a declining trend over the coming months as developers and builders seek to limit risks of over-building,” said CHMC chief economist Bob Dugan in a statement. “However, there may still be some variability from month to month as the number of presales for some planned condominium projects reaches sufficient levels to trigger project start.”

Urban starts decreased to 175,668 in August from 182,524 the previous month, while multiple urban starts decreased to 110,842.

Groundbreaking for single-detached urban starts decreased to 64,826, the national housing agency said.

Urban starts decreased in Ontario and Atlantic Canada and increased in the West. Urban starts were relatively unchanged in Quebec.

The report came just one day after Statistics Canada said building permits surged 11.8 percent July to $9.2 billion. The gains were led by multi-family dwelling permits, which rose 43.4 percent to $2.5 billion. Authorizations for single-family homes declined 0.5 percent after three consecutive months of increases.

The CMHC’s forecast for a broad pullback in builder activity reflects the Bank of Canada’s expectations for a soft landing in the residential real estate market. The CMHC forecasts housing starts to range between 179,600 and 189,900 units this year, before dropping to a range of 163,000 and 203,200 units next year.

Sales are expected to increase next year, according to the CMHC, as builders focus on reducing inventories.

The Bank of Canada cited “household imbalances” as a major concern last week when it decided to maintain its rate target at 1 percent.

The BOC also said housing activity has been “stronger than anticipated,” but that it expects “excess capacity in the economy to be absorbed during the next two years.”

That’s about how long it will take for Canada to return to full capacity, according to the central bank’s latest forecast. The Bank seemed pleased with the economy’s performance in the second quarter, as “an increasing number of export sectors appear to be turning the corner toward recovery,” the BOC said in its official statement dated September 3.

Canada’s economy grew at an annual rate of 3.1 percent in the second quarter, exceeding forecasts.

Statistics Canada will report on new house prices on Thursday. The housing price index, which measures price changes of new residential houses in Canada, increased 0.2 percent in June, which translated into an annual rate of 1.5 percent. Economists forecast a similar increase of 0.2 percent in July.

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