John Morrissy, Financial Post
OTTAWA — Canada’s weakening real estate market is headed for a rough patch in the months ahead, analysts said after data released Thursday showed housing starts slowing for the fourth consecutive month in August.
Canada Mortgage and Housing said in its monthly report that the seasonally adjusted rate of housing starts slipped three per cent in August to 183,300 units from a downwardly revised 188,900 starts in July.
At the same time, Statistics Canada said the country’s new housing price index fell 0.1% in July, the first such decrease in 13 months.
The decline in housing starts was essentially in line with the 185,000 that analysts had forecast, and follows four straight months of declines in the value of building permits, reported Wednesday.
It was felt across both major components of the housing industry, with single urban starts dropping 3.6% to 65,000 units and urban multiple starts falling 3.7% to 97,800 units, CMHC said.
“The report shows that despite a litany of headwinds, there is still a fair degree of forward momentum in Canada’s housing market,” said David Tulk, senior micro strategist at TD Securities.
Nevertheless, he cautioned, “markets should be prepared for a volatile couple of months ahead before the tone of the data improves.”
But none of the commentaries that followed CHMC’s data suggested Canada’s market is a bubble about to burst, the subject of heated debate in recent weeks.
“The risk of a 1990’s-style housing market correction are minimal,” wrote RBC economist David Onyett-Jeffries.
The current decline, he said, resulted from home buyers getting ahead of the implementation of the harmonized sales tax in Ontario and B.C., as well as rate hikes by the Bank of Canada.
“Much of this slowing represents a payback from earlier unsustainable strength.”
As a result, the housing market will continue to soften for the remainder of 2010 and into possibly well into 2011, analysts said.
“Over the next few quarters, we forecast housing starts to continue to ease, down near 170,000 units in the fourth quarter, and bottoming in the 150,000-160,000 range by mid-2011,” said Pascal Gauthier, senior economist at TD Economics.
Considering the housing market’s importance to the overall economy, Mr. Gauthier expects residential investment to be a drag on the economy for the next five to six quarters, before picking up again in 2012.
The housing market will get no immediate help from declining mortgage rates, pushed down recently by a rally in bonds and other fixed income instruments, thanks to the front-loading of housing activity into the first part of the year, Tulk said.
On a regional basis, CMHC’s August report showed sharp declines in the Atlantic region (down 29%), the Prairies (down 19.9%), and Quebec (down 17.7%). Starts surprised to the upside in the provinces that introduced the HST, with B.C. up 26.4% and Ontario up 15.6%.
At the same time, the month-over-month decline in Statistics Canada’s New Home Price Index was driven almost entirely by weakness in B.C. and Ontario, according to BMO Capital Markets economist Robert Kavcic.
On an annual basis, prices remained 2.9% higher than a year ago, Onyett-Jeffries pointed out.
Helping you is what I do!
