January 11, 2010 / 4:59 PM / in 8 years

UPDATE 3-Canada data offers more proof of housing strength

* December house starts stronger than expected

* Housing permits rise for ninth straight month

* Bank of Canada: premature to talk about bubble (Writes through with details from Bank of Canada, Scotiabank outlook)

By Ka Yan Ng

TORONTO, Jan 11 (Reuters) - The Canadian housing sector served up more evidence on Monday that it is leading the country’s economic recovery, while the Bank of Canada said it was premature to talk about a housing bubble.

Fresh data showed new home construction rose for a third straight month in December, according to Canada Mortgage and Housing Corp. Statistics Canada said residential construction permits jumped in November and “have started to approach their pre-downturn levels.” Statscan said.

“A fairly clear trend towards recovery has established itself in the residential category, whether one is looking at the permits numbers or actual unit starts,” said Stewart Hall, an economist at HSBC Securities Canada.

Housing starts rose 5.9 percent to a seasonally adjusted rate of 174,500 units in December from an upwardly revised 164,800 units in November, CMHC said, easily exceeding economists’ average forecast of 160,000.

The value of Canadian building permits issued fell 4.6 percent in November from October, roughly in line with forecasts, but housing permits were up 9.1 percent, Statscan said, the ninth consecutive month of gains. [ID:nN11413438

The pair of reports also underscore how Canada’s housing sector has shown resilience and leadership compared with other world markets, Scotiabank senior economist Adrienne Warren said in her Global Real Estate Trends report on Monday.

“Canada still leads the pack among the markets we track,” said Warren. She also warned against taking an “overly alarmist view” to the surge in home prices.

Rising consumer confidence will likely keep housing demand strong through the spring as buyers try to get into the market before interest rates are expected to rise.

“Reduced affordability, through a combination of higher home prices and borrowing costs, will eventually cool demand, though probably not until much later in 2010,” she said.

FEVER SPREADS

A rebound in urban housing starts, up 6.6 percent to 157,100 in December, was the main driver behind the overall gains. Both single-family homes and multifamily homes pushed higher, with singles up 6.4 percent at 79,400, and multiples up 6.7 percent at 77,700.

Regionally, Quebec led starts with a 17.8 percent climb, followed by 15 percent in Atlantic Canada, 8.7 percent in British Columbia, and 2.9 per cent in Ontario. The rate of urban starts decreased by 3.8 percent in the Prairies.

Rural starts were estimated at a seasonally adjusted annual rate of 17,400 units in December.

The data will be a sharp positive for fourth-quarter gross domestic product growth, economists said, while the sector’s growth has also been a key source of job creation.

“Overall, the uptick in Canadian residential starts underscores the improving response of builders to the dramatic rebound in overall Canadian housing market activity,” said Ian Pollick, an economics strategist at TD Securities.

“It is increasingly looking like the ‘fever’ in the existing home sales market is starting to catch in the new residential housing market,” he added.

The intense pace of activity in some communities has raised concerns about a housing bubble as prices soar to pre-recession levels in stark contrast to the sluggishness of the overall economy. [ID:nN16243453]

The housing market came to a virtual standstill late in 2008 in the wake of the global financial crisis as consumer confidence dropped sharply.

On Monday, the Bank of Canada said it was too early to talk about a bubble in Canadian housing markets. In prepared remarks before an Edmonton audience, Bank of Canada adviser David Wolf said the housing market requires “vigilance, but not alarm.” [ID:nOTW002494]

The bank said it will continue to watch developments in the housing market, and will take them into account when deciding monetary policy, which is based on inflation targeting .

Wolf said raising interest rates now to cool the housing market would be tantamount to “dousing the entire Canadian economy with cold water, just as it emerges from recession.” (Additional reporting by Claire Sibonney; editing by Peter Galloway and Rob Wilson)

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