Is Canada’s hot housing market finally cooling?
Canada’s hot housing market showed signs of cooling on Thursday as July housing starts slowed more sharply than expected, but housing prices were still climbing in June and analysts said a real slowdown may not come until late in 2012.
Ground breaking on new homes fell to a seasonally adjusted annual rate of 208,500 units in July, according to the Canadian Mortgage and Housing Corp, a sharp slowdown from the 222,100 units in June and below the forecasts of analysts in a Reuters poll, who had expected 213,300 starts.
It was the first time in seven months that the rate of starts fell below the six-month trend, and a government decision to tighten mortgage lending from July was expected to contribute to further slowing as 2012 draws to a close.
“We do expect that the impact of tighter mortgage regulations announced in late June will slow housing demand, but the impact on the construction and starts data is unlikely to show up until later in the year,” David Tulk, chief Canada macro strategist for TD Securities, said in a research note.
This week, Scotiabank forecast that home prices in Canada will fall 10% over the next two to three years. But other economists have predicted as much as a 25% correction.
The hot market has sparked fears of a bubble, particularly in Toronto, Canada’s largest city, and in Vancouver, as low interest rates fueled condominium building and double-digit annual price increases for existing homes.
The bulk of the pullback in July housing starts came in the multiple unit segment, where starts in the volatile condo market in British Columbia braked. That was in line with earlier data that has shown cooling in the Vancouver real estate market.
Multiple unit starts dropped 7.6% to 123,000 annualized units, the lowest level since February. Single unit starts fell 4.0% to 64,000 annualized units.
The slowdown in July pushed starts below the average for the second quarter and suggested the housing sector may not drive Canadian gross domestic product growth for much longer.
Mindful of the U.S. housing boom that was left unchecked until it burst, the Canadian government in July tightened conditions for homebuyers and mortgage lenders in a bid to deflate a possible bubble before it pops. The changes took effect in July.
This week Bank of Canada Mark Carney also stressed that despite global economic turmoil, interest rate hikes were still on the table in Canada.
Other data showed that prices of new homes in Canada rose by 0.2% in June, the 15th consecutive month-on-month increase, and continued strength in large cities such as Toronto and Calgary, Statistics Canada data showed.
The advance matched market expectations and follows the 0.3% month-on-month-gain in May.
Prices in Toronto, which accounts for 26.6% of the entire market, rose 0.3% in June, while prices in Calgary, where the booming energy industry has fueled demand, were up by 0.5%. New housing prices rose in 13 metropolitan regions, were unchanged in six and fell in two. Prices in June 2012 increased by 2.3% from June 2011 compared to the 2.4% year-on-year advance recorded in May 2012.
Source: Andrea Hopkins, Reuters
