June 8, 2015 / 3:14 PM / in 3 years

WRAPUP 1-Canada housing starts jump, bode well for economic snapback

OTTAWA, June 8 (Reuters) - Canadian housing starts jumped to the highest level in nearly a year in May, data on Monday showed, an unexpected move that signaled the country’s housing boom still has life and that the economy may strengthen in the second quarter.

Housing starts rose to 201,705 units last month, according to the Canadian Mortgage and Housing Corp report, topping market expectations for 185,000. The figures are seasonally adjusted and annualized.

A separate report showed building permits surged in April for the second consecutive month, lifted by the nonresidential sector.

On Friday, figures showed the economy added far more jobs than expected in May. Canada’s economy contracted in the first quarter, hit by cheaper prices for oil, a major Canadian export, but the Bank of Canada expects growth to bounce back later this year.

“Looking more broadly at the second quarter of 2015, the housing sector continues to show surprising strength, and we expect it will contribute positively to real gross domestic product growth as a result,” Randall Bartlett, senior economist at TD Bank, wrote in a note.

He added, however, that housing activity is expected to slow somewhat as the rest of the economy picks up steam.

A robust housing market, fueled by low interest rates, has been credited for much of Canada’s recovery from the global credit crisis. But the housing boom has raised concerns that parts of the country could be due for a painful correction, though policymakers still foresee a soft landing on the whole.

Ground-breaking on multi-unit homes in urban areas jumped by 16.9 percent in May, while new construction on single detached homes edged down 0.3 percent.

While harsh winter weather weighed on activity earlier this year, the six-month moving average for starts rose to 181,231 units.

“We’ve seen these seasonal swings already in each of the past two years, and the smoothed-out level of activity is still consistent with demographic demand,” wrote Robert Kavcic, senior economist at BMO Capital Markets.

Separate data from Statistics Canada showed the value of building permits rose 11.6 percent to C$7.8 billion ($6.3 billion) in April. That exceeded economists’ expectations for a decline of 6 percent and added on to March’s upwardly revised 13.6 percent gain. The value of nonresidential permits soared 30.2 percent, while residential permits rose 1.2 percent.

$1=$1.24 Canadian Editing by Peter Galloway

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