August 10, 2010 / 2:21 PM / 7 years ago

Canada's once-hot housing sector cools off

3 Min Read

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

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.

The multidwelling group, which includes high-rise condos, climbed 13.4 percent to 101,400 units. Starts in the closely watched single-family component dropped 11.3 percent to 67,900 units.

"Canadian home sales have softened significantly so far this year, and that should translate into a slower rate of housing starts in the second half of 2010. We're already seeing a marked correction in single-unit activity," said Robert Kavcic, economist at BMO Capital Markets.

Separately, new home prices climbed 0.1 percent in June, following identical increases of 0.3 percent in the previous three months, Statistics Canada data showed.

Analysts expected a 0.2 percent rise in the month, according to a Reuters survey. Prices, which do not include taxes, rose on a monthly basis in nine of the 21 cities surveyed, and were flat in five and declined in seven.

The top contributors to the monthly increase were Toronto and Oshawa, with a 0.3 percent rise, and a 0.5 percent gain in Ottawa-Gatineau. The largest decrease was recorded in Regina, down 0.4 percent.

Year over year, the new home price index was up 3.3 percent in June, following a 2.9 percent rise in May.

The housing-only component of the new housing price index rose 0.2 percent on a monthly basis and 5 percent for the year. The land-only component was flat in June and slipped 0.1 percent on the year.

Editing by Jeffrey Hodgson

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