September 9, 2008 / 12:23 PM / 9 years ago

Housing market rebounds, Ontario leads way

TORONTO (Reuters) - Housing starts rebounded in August, beating expectations, but some economists cautioned against reading too much into the number since it followed a weak reading in July.

Housing starts rose 13 percent in August to a seasonally adjusted annualized rate of 211,000 units from 186,500 units in July, Canada Mortgage and Housing Corp said on Tuesday.

The bulk of the overall gain, which topped the consensus analysts’ expectation for 195,000 starts, was in Ontario, where there was an 81 percent jump.

Government-owned CMHC attributed the surge to multiple-unit starts, which shot up 25.2 percent to 114,700 units following a 20.2 percent slide in July.

Starts on urban single-family residences rose 2 percent to an annual rate of 71,200 units, while rural starts in August were estimated at an annual rate of 25,100 units, unchanged from 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,” Bob Dugan, chief economist at CMHC, said in a statement.

The data contrasts with the state of the housing market in the United States, which has been hit by a crisis that began in the subprime mortgage sector and spread across other sectors of the market and the broader economy.

But some experts were quick to suggest that since the bounce back in housing starts followed weakness, it does not mean that housing activity in Canada is buoyant.

“It should be taken for what it is - a snapback from a previously large decline,” Charmaine Buskas, senior economics strategist at TD Securities, wrote in a note.

“The Canadian housing market does have some headwinds that will bring down activity in the next couple quarters, which suggests a softer trend in the housing market and a smaller contribution to growth.”

The Canadian dollar showed little reaction to the data but eventually relinquished gains recorded earlier and headed lower along with oil prices.

The rise in housing starts is in keeping with data released earlier this week that showed the value of Canadian building permits rose unexpectedly in July from June, led by a rise in projects to build multifamily housing.

“MORE DOWNWARD PRESSURE”

Housing starts in Ontario, Canada’s most populous province, shot up to 86,500 in August.

But starts fell in all other regions, including a 8 percent slide in British Columbia to 30,400, and a 22.5 percent drop in the Prairie region to 23,700.

Starts fell by 8.7 percent to 37,600 in Quebec and by 11.5 percent in the Prairies to 23,700.

“Canadian residential construction activity has held steady since 2003 thanks to strong multiple-unit starts and strength in Western Canada,” Robert Kavcic, an economic analyst at BMO Capital Markets wrote in a note.

“However, with that region slowing and other factors - job losses, declining confidence - pointing to further housing market weakness, expect more downward pressure on housing in the coming quarters.”

Editing by Peter Galloway

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