Housing starts climb unexpectedly in July

Tue Aug 9, 2011 1:09pm EDT
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By Ka Yan Ng

TORONTO (Reuters) - Canadian housing starts unexpectedly climbed 4.3 percent in July, setting third-quarter new home construction off to a strong start and maintaining its role for now as a key support to the economy.

Starts, elevated by a big jump in construction of multi-residential buildings such as condominiums, rose to a seasonally adjusted annualized rate of 205,100 units, Canada Mortgage and Housing Corp (CMHC) said on Tuesday.

That is up from a downwardly revised 196,600 units in June, which were originally reported at 197,400 units. The median forecast of 19 analysts surveyed by Reuters was for a modest decline to 196,000 starts.

"Detracting slightly from the headline's positive cast, this month's gain was concentrated in the multiples segment, which tends to have a lower valued added," said Peter Buchanan, senior economist at CIBC World Markets.

"Today's report and the recent resilience of both permits and sales suggest housing continues to be one of the economy's strongest sectors, although sentiment among purchasers obviously remains vulnerable to recent market turmoil."

Unlike the United States and many other developed countries, Canada's housing sector has been a strong source of support for the economy, helping draw it out of the recession.

Analysts credit low interest rates and banks still willing to lend. But they also warn that recent financial market volatility could hurt consumer sentiment and hit demand for new and existing homes.

However, the turmoil could also help to keep Canadian interest and mortgage rates lower for longer. Market expectations for Canadian interest rates, as measured by overnight index swaps, show traders have actually priced in the prospect of a rate cuts by year end.   Continued...

<p>Builders work on the the roof of a new home under construction in the Montreal suburb of Brossard, August 10, 2010. REUTERS/Shaun Best</p>