January 10, 2012 / 1:32 PM / in 6 years

Housing starts jump in December

TORONTO (Reuters) - Canadian housing starts climbed more than expected in December, fueled by low mortgage rates and a boom in condo construction, even as analysts predicted the once-hot sector would cool further in 2012.

Housing starts rose to a seasonally adjusted annualized rate of 200,200 units from an upwardly revised 185,600 units a month earlier, Canada Mortgage and Housing Corp said on Tuesday.

The number of starts was well above the consensus expectation of 19 analysts polled by Reuters, who had called for 185,000 starts.

Canada’s housing sector, which did not experience the subprime mortgage boom and bust seen in the United States, played a key role in lifting the economy out of recession as ultra-low interest rates drove sales and prices higher.

The latest data showed the seasonally adjusted annual rate of urban starts rose by 10.1 percent to 181,900 units, CMHC said.

Multiple-unit urban starts, which include condominiums, accounted for the lion’s share of the overall rise, increasing by 14.5 percent to 111,300 units in December. The government agency said multiple starts were especially strong in Ontario and Atlantic Canada.

Urban single starts climbed by 3.8 percent to 70,600 units. Rural starts were estimated at 18,300.

Even so, analysts noted housing starts over the last three months of 2011 declined from the prior quarter.

Emanuella Enenajor, an economist at CIBC World Markets, said condominiums got a boost in part due to housing affordability and land-supply issues, and is expected to taper off.

“Across both singles and multiples you’re having a slowing in the pace of economic momentum that is constraining more broadly construction,” she said. “We’re just getting some of the slower pace of the economy bringing construction activity down to earth.”

In a note to clients, Enenajor said low interest rates are helping to support housing construction from measurably deteriorating, but the market will likely flatten out due as economic growth slows.

In 2011, housing starts totaled 193,200 units, up a modest 0.9 percent from 2010, said Robert Kavcic, economist at BMO Capital Markets. Building activity ran at about 225,000 per year in the five years before the 2008 recession.

“In other words, and broadly speaking, homebuilding appears pretty well behaved in Canada,” he said in a note to clients.

A cooler property market would be welcomed by Canadian policymakers, who fear the market’s post-recession boom, combined with a long run of low lending rates, could create a fresh asset bubble.

Bank of Canada Governor Mark Carney has repeatedly warned about the dangers of Canadians borrowing too much at very low interest rates. Data last month showed the level of household debt swelled to another record high in the third quarter.

Even so, a deteriorating European economy and weak global growth are expected to keep Bank of Canada rates on hold until 2013.

A Reuters poll of more than 40 economists and strategists released on Tuesday showed the median forecast for the next interest rate hike was pushed back by three months to the first quarter of 2013.

Mazen Issa, Canada macro strategist at TD Securities, also said the outlook for the housing sector was less optimistic.

“While we expect that an environment of low interest rates will prevent a pronounced drop in demand, the combination of overstretched household balance sheets, the impact of tighter mortgage regulations (including the potential for an additional tightening), and bruised confidence will nevertheless weigh,” he said in a note to clients.

Led by a moderation in multiple units, which have underpinned activity over the last two years, Issa forecast that starts will moderate to 181,000 units in 2012 and to 172,000 units in 2013.

Editing by Jeffrey Hodgson and Janet Guttsman

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