Housing starts show surprising strength

Tue Nov 8, 2011 1:33pm EST
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By Claire Sibonney

TORONTO (Reuters) - Housing starts in Canada were higher than forecast in October, supported by low interest rates, but analysts see a slowdown coming as the global economic outlook darkens.

Canada Mortgage and Housing Corp (CMHC) said on Tuesday there were 207,600 starts in October on a seasonally adjusted annualized basis. That was up from 195,000 forecast by analysts in a Reuters poll ECONCA>, but still down from an upwardly revised 208,800 units in September.

CMHC said that condominium construction continued to pace the market, overshadowing starts on single-detached homes.

Mazen Issa, Canada macro strategist at TD Securities, said in a note to clients that low interest rates - and the likelihood that the Bank of Canada will keep them low in the face of a bleaker economic climate - may continue to support the housing market.

But he cautioned that tighter mortgage rules, diminished household spending capacity, and higher five-year mortgage rates will weigh.

In September there was a third consecutive monthly decline in building permits issued, and other reports have suggested markedly weaker economic growth toward the end of the year, signaled by data showing an unexpected jobs loss and a slower pace of purchasing activity in October.

Issa said, however, that the housing market in Canada may continue to look healthy compared with others.

"Broadly speaking, the Canadian economy remains favorably situated relative to its global peers as headwinds on the international front have intensified," he said.   Continued...

<p>Condo buildings are seen under in construction in Toronto June 19, 2009. REUTERS/Chris Roussakis</p>