Monday, June 09, 2008

Canadian Housing Starts Expected to Soften in Second Half of 2008

Canadian housing starts increased in May but the Canadian market is likely to cool in the second half of 2008.

The annual rate of housing rose to 221,300 in May, up from 213,900 units in April.

Single homes and multi-family units in urban areas of the country were both up sharply over the previous month while starts in rural areas held steady at 28,500. Urban singles rose 7.3% to 76,700 units, a rebound from April when the category had reached its lowest level since May 2001. Urban multi-family starts increased to 116,100 on an annual basis, up from 113,900 in April.

The May results were a bit stronger than expected and an indication that Canada's housing industry remains quite healthy in continued contrast to the world-famous collapse in U.S. housing.

The latest level of starts is barely below the average pace seen since the housing boom got rolling in 2002. However, the recent cooling in home sales and the downturn in consumer sentiment suggest that building activity will finally begin to lose some momentum later this year.

Despite the rise in May starts, the average level of starts in April and May is down an annualized 7.1% compared to the first quarter. The weakening in single detached homes, usually a more stable indicator of the trend in housing, is down an even greater 9.5%.

That softness will play into the Bank of Canada's interest rate decision to be announced tomorrow, predicting that the central bank will shave another 25 basis points from its key overnight lending rate.


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