Housing starts rise unexpectedly, fuelling boom

Canadian housing starts rose unexpectedly in November and building permits surged in October, fuelling a prolonged housing boom even as the country's struggling economy contributed to underlying softness in some regions.

Rising prices continue to spur construction of new multi-unit homes, CMHC says

New home construction in Canada has picked up strength in the second half of this year after a weak start to 2015. The pace for urban homes is especially strong in the Prairies, Ontario and Atlantic Canada. (Reuters)

​The Canadian housing market continued to show signs of strength as the annual pace of housing starts in November came in faster than expected, fuelling a prolonged housing boom despite signs the economy is flailing.

The Canada Mortgage and Housing Corp. said Tuesday the annual pace of housing starts increased to 211,916 units in November compared with 197,712 units in October.

That compared with the 197,300 that had been expected by economists, according to Thomson Reuters.

"Canadian homebuilding activity remains robust, and accelerating momentum through the latter stages of 2015 will likely catch the eye of policy-makers currently stewing over the strength in real estate," Bank of Montreal senior economist Robert Kavcic said.

Overall, the rate of urban starts increased by 7.7 per cent in November to 195,121, boosted by a gain in multi-unit starts, which increased by 13.2 per cent to 137,898. Single-detached urban starts fell 3.6 per cent to 57,223 units.

The pace of urban starts increased in the Prairies, Ontario and Atlantic Canada, but fell in British Columbia and Quebec.

CMHC chief economist Bob Dugan noted that rising single home prices continue to support demand for multi-home starts.

"However, inventory management is necessary to make sure that these units do not remain unsold upon completion," Dugan said.

Rural starts were estimated at a seasonally adjusted annual rate of 16,795 units.

Closely watched

The strength of the Canadian housing market is being closely watched.

New home construction in Canada has picked up strength in the second half of this year after a weak start to 2015, against the backdrop of a struggling economy. Statistics Canada figures show Canadian GDP dipped slightly from June through September, the latest month for which data is available. 

"Looking forward, relatively tight housing market conditions in Ontario and B.C. may continue to encourage a relatively lofty pace of new home construction at least through the first half of 2016," TD Bank economist Diana Petramala said.

"However, the combination of weaker economic growth and rising longer-term borrowing rates in Canada will likely pull some of the steam out of housing activity overall next year."

The report on housing starts came as Statistics Canada said municipalities issued $7.7 billion worth of building permits in October, up 9.1 per cent from September and the first increase in three months.

The value of residential building permits totalled $4.8 billion in October, up 15.5 per cent from September, while permits for non-residential buildings slipped 0.2 per cent to $2.9 billion in October.