Canada housing starts unexpectedly jump, new home prices gain

Thu Oct 8, 2015 9:44am EDT
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By Andrea Hopkins

TORONTO (Reuters) - Canadian housing starts surged unexpectedly in September while new home prices also beat forecasts in August, prolonging a housing boom in the country despite signs of weakness in other parts of the economy.

Groundbreaking on new homes jumped to a seasonally adjusted annual rate of 230,701 in September from a downwardly revised 214,255 in August, a report by the Canada Mortgage and Housing Corp showed.

That puts housing starts at the highest since August 2012, bucking forecasts for a slowing in construction to 200,000 starts, which economists have said is more in line with demographic demand.

"In the span of about three months, Canadian homebuilding activity has gone from a controlled simmer to a rolling boil," BMO Capital Markets senior economist Robert Kavcic said in a research note.

"We probably can’t sustain this level of homebuilding activity for long before excess supply concerns start to build."

Canada's housing boom has defied predictions of a slowdown for years, buoyed by historically low borrowing costs that have offset slow economic growth and a technical recession in the first half of 2015.

The Bank of Canada has cut rates twice this year to help stimulate the resource-dependent economy amid weak oil prices.

The last time housing starts stayed well above 200,000 for a prolonged period, the Canadian government tightened mortgage lending rules to cool the market.   Continued...