Soft condo sector drags on Canadian housing starts

Mon May 9, 2011 2:27pm EDT
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By Ka Yan Ng

TORONTO (Reuters) - Canadian housing starts unexpectedly slipped 3.1 percent in April, hurt by weakness in the condominium sector, the latest sign higher interest rates and new mortgage rules have cooled a recent property boom.

Starts slipped to a seasonally adjusted annualized rate of 179,000 units from a downwardly revised 184,700 units in March, Canada Mortgage and Housing Corp said on Monday. The median market forecast was for 185,000 units.

Canada's housing market helped lead the country out of the recent recession as near-zero interest rates spurred a surge in prices and sales activity.

The boom worried the Canadian government enough to impose tighter mortgage rules twice in less than a year. The latest series, aimed at mortgage amortization and refinancing, came into effect last month.

Analysts predict the housing market will cool further in coming months thanks to the new rules and higher borrowing costs. The Bank of Canada hiked rates three times last year, which helped lift mortgage rates, and more increases are expected for 2011.

While the central bank targets inflation rather than asset prices, the moderating housing sector is seen giving it more room to hold off on resuming tightening.

"They don't have to put on the brakes just yet in terms of raising interest rates in response to the housing market," said Mazen Issa, macro strategist at TD Securities.


<p>A condominium building under construction is seen in downtown Toronto, May 14, 2009. REUTERS/Mike Cassese</p>