Saturday, April 08, 2006

Unstable Housing Boom in Canada

New home construction numbers were stronger than expected last month, but experts warn Canada's housing market is ready to take a rest.

Housing starts slipped 2.9% to 240,900 on an annualized basis in February, from 248,100 in January, according to Canada Mortgage and Housing Corp. figures released yesterday.

But industry observers had been expecting starts to drop to 231,000, BMO Nesbitt Burns chief economist Sherry Cooper said in a research note.

"After an incredibly warm January, February's chillier temperatures only managed to cool housing activity modestly," Cooper wrote.

Despite the month-over-month slippage, starts for the first two months of 2006 were 16% above the same period last year, Scotia Economics analyst Sarah Hughes observed.

Ottawa housing starts for the first two months of 2006 were up 8% from the year-ago period.


February's strong performance, "combined with the blockbuster reading of January, (means) starts in the first quarter of 2006 are on track to be their highest level in the current housing cycle," said TD Bank economist Sebastien Lavoie.

He noted that strong national numbers mask a wide divergence in regional performance. But, overall, Canada's housing market is expected to lose steam.

"Don't get used to it," Benjamin Tal, senior economist at CIBC World Markets, said of the numbers.

Tal said it's important to keep in mind that housing starts are declining. And he believes the current strength is a sign that homebuilders and homebuyers are jumping into the market before it softens further.

"It's what we usually see at the end of the cycle," Tal said.

Along with higher prices and mortgage rates, a rising inventory of unsold new homes is expected to temper activity, Scotiabank's Hughes said.


Post a Comment

<< Home