Annual rate

Latest : 205.1K (actual); 194.5K (forecast);
Previous 196.6K (revised from 197.4K)

FACTS: After a strong showing in the first half of the year, Canadian housing starts showed no signs of letting up, rising 4% in July to an above-consensus 205.1K units (from a downwardly revised 196.6K in June). All the gains were in multiples (up 13% to 120.2K), while single family home starts gave back some of the prior month’s gains, dropping 7.8% to 65K. On a regional basis, urban BC starts rose the most (although that didn’t make up for that province’s steep drop in starts in the prior month), while Ontario and the Atlantic provinces also registered gains. Québec starts fell for the third time in four months, although the tally of 45.6K remains close to the 5-yr average.

OPINION: Canadian housing starts have remained strong despite the changes in mortgage regulations last quarter that made it harder for first-time home buyers to enter the market (top chart). A low interest rate environment and a healthy labour market are clearly providing support. So much so, that residential construction is poised to be a healthy contributor to GDP in Q2 (middle chart). With July’s strong reading, Q3 seems to have started well, although the drop in singles, which generally contribute more to GDP per unit than multiples, may weigh a bit there.

While acknowledging the healthy July report, we continue to anticipate a softening in housing starts in the coming months as a slower global economy and the likely hit to consumer confidence (resulting from the slumping financial markets) offset the incentives provided by low interest rates. And there, we expect the multiples segment to be more vulnerable given its steeper ascent since the end of the recession (bottom chart).