Housing market continuing to cool

A little more steam seeped out of the Canadian housing market last month, adding to evidence that the nation's economic boilers are continuing to cool.

Figures from Canada Mortgage and Housing Corp. show housing starts slowed much more sharply than expected in July, as the fevered pace of condo and other multiple-unit dwelling construction in Ontario cooled, at least briefly.

Starts came in at a seasonally adjusted annual rate of 186,500 units, down from a revised 215,900 units in June, CMHC said yesterday.

That was well below an average forecast of 210,000 for July, and it marked just the first time since December and the fourth time in 5½ years that the rate has come in below 200,000. "This report was fairly ugly, and adds to the growing body of evidence pointing to the cooling in the Canadian housing sector," TD Securities economics strategist Millan Mulraine said. Combined with July's large job losses reported Friday, the data point to broad weakness in the economy.

The housing start numbers also marked another nasty recent surprise for forecasters.

Last Thursday, Statistics Canada revealed that the value of building permits issued in June was $6.3-billion, down 5.3 per cent from May, where Bay Street had forecast a dip of just 1 per cent.

On Friday, meanwhile, Statscan shocked observers by disclosing that the nation lost 55,200 jobs last month, where forecasters had predicted a modest gain of 5,000 jobs. It was the largest monthly loss since the 1991 recession.

CMHC released its data yesterday as other figures from Statscan showed new-housing prices increased at their slowest pace in more than six years in June - 3.5 per cent year over year, compared with 4.1 per cent in May. CMHC said multiple-unit starts fell 20.2 per cent to 91,600, with Ontario, and more particularly, Toronto, accounting for virtually all the drop. Single home starts dropped 6.6 per cent to 69,800 units, with the decline experienced across the country.

However, Jason Mercer, CMHC's senior market analyst for the Greater Toronto Area, cautioned that construction timing for large-scale high-rise projects of the sort that have dominated recent housing development in the city and its environs have "routinely resulted in month-over-month starts volatility."

The change in year-to-date, rather than monthly, housing starts, he added, gives a "more accurate reflection." And for the GTA, the 15,832 multiple-family unit starts for the first seven months of 2008 are running 57.1 per cent ahead of the comparable period last year.

Real estate industry consultant Barry Lyon also argued that housing starts data can be misleading because of time lags, and that sales are a more accurate guide to the true state of affairs. "Construction is often a year or two years behind sales, so the construction being reported now is a result of sales done a year or a year and a half ago," said Mr. Lyon, who heads Barry Lyon Consultants Ltd. in Toronto.

TD's Mr. Mulraine stressed the slowdown "is in no way comparable to the prolonged correction that we have been seeing in the U.S."Royal Bank of Canada assistant chief economist Paul Ferley concurred. The average declines of 5.8 and 14.8 per cent the bank is forecasting for this year and next, he said, "represent a modest pace of slowing in contrast to the plummet in activity in the U.S., where starts fell 26 per cent last year and are expected to decline another 30 per cent this year before modestly recovering 5 per cent in 2009."

(prepared by John Partridge/Globe & Mail)