July 9, 2015 / 12:30 PM / 3 years ago

Canadian housing holds strength as rest of economy sags

TORONTO (Reuters) - Canadian housing starts rose more than expected in June and new home prices climbed in May, reports showed on Thursday, suggesting Canada’s long housing boom still has momentum even as the rest of the economy struggles.

Houses are seen in a suburb located north of Toronto in Vaughan, Canada, June 29, 2015. REUTERS/Mark Blinch

The Canadian Mortgage and Housing Corp said the seasonally adjusted annualized rate of housing starts rose to 202,818 units in June from a downwardly revised 196,981 in May. Analysts had expected a slowdown to 190,000.

The building boom in June followed a greater-than-expected 0.2 percent increase in new home prices in May from April, according to a report by Statistics Canada. The price gain outpaced forecasts for a 0.1 percent increase and was spurred by a 0.5 percent rise in Toronto’s hot housing market.

“Notwithstanding worries tied to other parts of the Canadian economy, housing continues to post solid readings,” CIBC World Markets economist Nick Exarhos said in a research note.

Canada’s housing market has climbed unsteadily higher in the six years since the global financial crisis despite warnings from economists that a plateau, or a slowdown, or a crash loomed.

Financial authorities have spoken of a three-speed housing market, with Toronto and Vancouver sizzling, Canada’s energy-producing heartland of Alberta and Saskatchewan suffering due to low oil prices, and the rest of the country relatively stagnant.

“The momentum in the housing market through the spring and into the summer is undeniable,” David Tulk, head of global macro strategy at TD Securities, wrote in a note. “Low interest rates and the release of pent-up demand following a miserable winter has helped drive this increase.

“From the perspective of the Bank of Canada, the housing market does provide some positivity in contrast to weakness in business investment and in exports.”

Actual declines in new home prices were registered in several cities in May in Central and Eastern Canada, including Quebec City and Montreal. Those two cities, along with Ottawa, Regina, Victoria and a cluster of cities in New Brunswick, have also seen year-on-year declines.

Despite the overall rise, new home prices were still only 1.2 percent higher than in May 2014.

The new housing price index excludes apartments and condominiums, which account for one-third of new housing.

Housing starts were led by groundbreakings in Quebec, the Prairie provinces and British Columbia, while Ontario starts dropped and those in Atlantic Canada inched higher.

Additional reporting by Randall Palmer in Ottawa; Editing by Peter Galloway

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