Housing Starts Peaked?

Housing starts in Canada were up in August to an seasonally adjusted annual rate of 241,500 according to Canada Mortgage and Housing Corp., beating expectations, but analysts suggest the rate may have peaked.

Royal Bank assistant chief economist Derek Holt forecast housing starts to cool off to around the 200,000 level by the end of next year.

"That's still at an elevated level, it's just that the ability of the housing sector to contribute to overall economic growth will have turned the corner and actually we're looking at it becoming a drag at that point," Holt said.

"It's still very strong, very high and elevated levels of activity, and blows away most of the years in which we had relatively depressed house construction numbers in the 1990s."

Holt said he would attribute the decline to an exhaustion of pent-up demand, the effect of high house prices and increasing mortgage rates.

The seasonally adjusted annual rate of building starts in cities was up 11.9 per cent to 214,700 units in August.

The Crown corporation said the increase was mainly due to the high level of starts of buildings such as condominiums, which increased 35.9 per cent to 114,600 in August, while individual home starts fell 6.9 per cent to 100,100 on a seasonally adjusted annual basis.

"High activity in the resale market also confirms that demand for home ownership remains strong while creating spill-over demand in the new-home market," said Bob Dugan, chief economist at CMHC's market analysis centre.

"Next year, as mortgage rates begin to rise, we expect the pace of new construction to moderate."

All regions of Canada, except Quebec, reported increases in the seasonally adjusted annual rate of urban starts in August, led by British Columbia, where they rose 33.8 per cent.

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