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Canadian housing starts rise in July

H.S. Borji
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Canadian housing starts rise in July

Canadian housing starts unexpectedly surged in July, as the housing market showed little sign of slowing down at the start of the third quarter.

Groundbreaking last month rose to a seasonally adjusted annual rate of 200,098, following an upwardly revised reading of 198,700 in June, the Canadian Mortgage and Housing Corporation reported today.

The figure was well above the median estimate of economists, which called for a decline to 193,000.

July starts pushed the six-month moving average to 189,784.

Urban starts stabilized in July, posting a slight increase from the previous month. Multiple urban starts declined to 115,870 units while single-detached urban starts rose to 67,062, CMHC showed.

Urban starts increased in Atlantic Canada and Ontario, and decreased in the Prairies. British Columbia and Quebec also posted modest declines last month.

The latest advance is unlikely to jeopardize the Bank of Canada’s forecast for a soft landing in residential real estate activity, as declining affordability and higher ownership rates are expected to weigh on the market.

In its July Monetary Policy Report the central bank said “Recent developments in the housing market have been broadly consistent with a soft landing.”

The central bank expects borrowing costs to rise toward the end of the year.

“The trend in construction has increased modestly in recent months due to in large part to multiple starts, which have strong variability from month-to-month,” said CMHC chief economist Bob Dugan in a statement. “Nevertheless, CMHC continues to expect a soft landing for the new home construction market in Canada.”

Statistics Canada on Thursday will report on new house prices for the month of June. The new housing price index rose 0.1 percent in May and at an annual rate of 1.5 percent, official data showed last month.

Last week StatsCan said building permits surged 13.5 percent in June, driven by higher construction intentions for non-residential buildings. The value of non-residential building permits increased 32.5 percent, the biggest single-month gain since July 2013.

The value of residential building permits increased for the fourth consecutive month at a rate of 0.4 percent, official data showed.

The housing sector expanded sharply in the second quarter, defying expectations for a broad cool down. Housing starts have been gradually rebounding from March’s five-year low of 157,500, which was mostly due to severe weather.

Canada’s economy expanded just 0.3 percent in the first quarter and at an annual rate of 1.2 percent, as an unusually cold winter disrupted household consumption, business spending and government spending.

The Canadian economy in May expanded at the fastest pace in four months, driven by gains in retail trade, manufacturing and construction activity. Canada’s gross domestic product grew 0.4 percent that month, following a 0.1 percent increase in each of the previous two months, official data showed.

The economy grew 2.3 percent from year-ago levels.

The May figure suggests economic growth in the second quarter was approaching the 2.5 percent annualized rate forecast by the Bank of Canada. StatsCan will release second quarter GDP data at the end of the month.

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