Canadian housing starts cool in August, seen moderating further

Tue Sep 9, 2014 9:28am EDT
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By Andrea Hopkins

TORONTO (Reuters) - Canadian housing starts cooled more than expected in August, while the previous month was also revised slightly lower, data showed on Tuesday, setting the stage for what is widely expected to be a slowing housing market as 2014 draws to a close.

A report from the Canada Mortgage and Housing Corp showed the seasonally adjusted annualized rate of housing starts slipped to 192,368 last month from a downwardly revised 199,813 units in July.

That was shy of analysts' forecasts for 195,000. July was originally reported as 200,098.

The small drop brought the six-month moving average to 189,837, little changed in the last 12 months despite a big slowdown in the harsh winter months and a roaring bounceback in the spring and early summer.

"The persistence of unsustainably lean mortgage rates has likely bolstered housing demand in recent months, and even with the dip in August, starts remain elevated relative to the rate of household formation," Laura Cooper, an economist at Royal Bank of Canada, said in a research note.

Canada's housing market has defied expectations for a slowdown or crash but most economists expect homebuilding and sales to slow when mortgage rates rise. Mortgage rates remain low and borrowers are taking on near record levels of household debt to get into the market.

"The Bank of Canada may be looking for a rotation away from housing and the consumer, but low rates continue to support residential investment," CIBC World Markets economist Nick Exarhos said in a research note.

"But despite recent resiliency, we still expect housing’s contribution to growth to slowly wane as we progress through this business cycle, with affordability concerns and a weak labor market putting pressure on the building sector going forward,"   Continued...

A condominium construction site is seen in Toronto, March 11, 2014. REUTERS/Aaron Harris