Housing starts jump, led by Ontario
By John Partridge - Globe and Mail
Housing starts rebounded sharply in August, with the seasonally adjusted annual rate jumping to 211,000 units from 186,500 in July, far outstripping Bay Street forecasts of about 190,000, Canada Mortgage and Housing Corp. said Tuesday.
Ontario accounted for the entire gain, with starts in the country’s most populous province climbing 81% to 86,500 from 47,800 in July, but falling in every other region, CMHC said.
The agency attributed the rebound mostly to multiple-unit starts, with those in urban areas jumping 25.2% to 114,700 units, after falling 20.2% in July.
“After a brief pause in July, the volatile multiple segment bounced back to a level of activity that is more consistent with our forecast for this year,” CMHC chief economist Bob Dugan said in a news release. “Most of the volatility in housing starts over the last three months reflected swings in multiple starts in Ontario.”
The July drop marked just the fourth time in 5-1/2 years that the seasonally adjusted annual rate had fallen below 200,000 units.
The unexpectedly strong rebound came a day after figures from Statistics Canada for the value of building permits issued in July also surpassed expectations, rising by 1.8% to $6.4-billion, instead of the 1% forecast by economists, following a 5.3% drop in June.
Still, the CMHC’s start figures can be a misleading guide to the state of the housing market and the economy at large, because they often represent investment decisions and sales made by builders and developers a year or two before construction begins.
TD Securities cautioned against reading too much into the August performance, even though the 13.1% increase almost fully reversed the previous month’s 13.6% drop.
“On balance, this does not necessarily mean that housing remains healthy,” Charmaine Buskas, senior economics strategist, said in a research note. “It should be taken for what it is – a snapback from a previously large decline. The Canadian housing market does have some headwinds that will bring down activity in the next couple of quarters.”
Royal Bank of Canada was a little more sanguine about the numbers.
“The jump in August starts provides some optimism, along with last Friday’s August employment report, that the economic picture may not be as bleak as the GDP numbers implied over the first half of this year, where the economy recorded essentially no growth,” assistant chief economist Paul Ferley said in a commentary.
Still, Mr. Ferley said this optimism needs to be tempered by the fact that strength in the August housing numbers was narrowly based in the volatile multiples component in Ontario. “As well, the earlier deterioration in affordability will likely reassert a downward trend in the starts data going forward for the remainder of this year and through 2009,” he said.
As a result, Mr. Ferley reiterated that the bank still expects starts next year to average a little over 180,000, down from a recent annual peak in 2006 of 229,000.
However, the pace of decline is modest compared to the drop that has occurred in the U.S., where the 965,000-unit level of starts represents less than half of the recent annual peak in 2005 of 2.073 million units.
CMHC said that nationally, starts of single-family dwellings rose 2% to 71,200 units in August.
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