Canada's once-hot housing sector cools off

Tue Aug 10, 2010 12:25pm EDT
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By Ka Yan Ng

OTTAWA (Reuters) - Canadian home construction fell in July and new home prices rose less than expected in June, further evidence a housing market boom that helped drive the country's recovery from recession is starting to stall.

The reports released on Tuesday are in line with other recent home data that has shown higher interest rates and a new blended sales tax in Ontario and British Columbia are weighing on the key sector.

Housing starts fell a less-than-expected 1.6 percent in July to a seasonally adjusted annualized rate of 189,200 units from a revised 192,300 in June, Canada Mortgage and Housing Corp (CMHC) said. Analysts had called for 186,500 starts in July. June housing starts were originally reported at 189,300 units.

"This report confirms that housing has been lost as a driver of growth in the Canadian economy," Scotia Capital economists Derek Holt and Gorica Djeric said in a commentary.

"There are no BoC (Bank of Canada) implications stemming from this report in our view. The BoC expected housing to cool, and it is being replaced as a growth driver by business investment in machinery and equipment."

Canada's central bank, along with most economists, had forecast residential investment would weaken markedly for the balance of the year.

Still, the Canadian dollar weakened to a session low against its U.S. counterpart after the data.

The CMHC report showed the seasonally adjusted annual rate of urban starts rose 1.9 percent to 169,300 units as a big jump in the volatile multidwelling group offset a retreat in single-family homes.   Continued...

<p>A construction worker works on building new homes in Calgary, Alberta, May 31, 2010. REUTERS/Todd Korol</p>