Tuesday, July 11, 2006

Housing Starts Up Amid Signs of Slowing

CMHC says the rate of housing starts rose 4.5 % in June, but details of the data pointed to a softening of home-building activity.

Seasonally adjusted annualized starts grew 10,000 from May to 232,200 units.

However, much of the increase came from the volatile multiple segment of the new-home market.

Even with the strong showing in June, housing starts ended the second quarter more than nine per cent below their first-quarter level.

The bellwether single-detached home sector was at its second-lowest level of the year, marginally above the May level.

We expect the level of activity to moderate in the second half of 2006 as rising prices and marginally higher mortgage rates result in a softening of demand for both existing and new homes.

The numbers indicate that a soft landing in most of Canada's housing markets still appears to be unfolding.

We expect this gentle downtrend to carry on for the rest of the year.

Meanwhile, another report released Thursday by Statistics Canada showed home prices increased by an average 1.3 per cent in May, bringing the year-over-year gain to 9.1 %.

That was the biggest 12-month change recorded since January 1990, as Calgary new-home prices increased 41.3 % year over year and Edmonton gained 24.4 % — with most other major cities under 5 %.

It is hardly new that the regional breakdown of both housing starts and new-home prices shows a great divide between housing markets in Alberta and the rest of Canada.

He observed that starts in Alberta surged 17 % from a year earlier during the second quarter, while the rest of Canada posted an eight per cent decline.

Overall, housing starts were below year-ago levels for the third month in a row.

The bottom line: Canadian house prices, especially in the West, are heating up, and that, despite the latest pop in housing starts, is biting into activity.


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