Housing market defies slump predictions

Despite a lot of huffing and puffing, Canada's housing market seemingly refuses to be blown down by the slumping domestic economy.

Housing construction starts last month rebounded by a steep, and more than expected, 13.1 per cent, to an annual seasonally adjusted pace of 211,000 almost completely offsetting a similarly large plunge the month before, the federal housing agency reported.

The report Tuesday from Canada Mortgage and Housing Corp. followed news a day earlier that home-building intentions the month before were also much stronger than anticipated.

Analysts, however, continued to warn that the housing market cannot continue to defy the gravity of a slowing domestic economy, and the good news failed to prevent another triple-digit loss on Bay Street and further slump in the currency, reflecting concerns about the global slowdown.

"On balance, this does not necessarily mean that housing activity remains healthy," said TD Securities analyst Charmaine Buskas, projecting a slowdown that will dampen overall economic growth as well. "It should be taken for what it is -- a snapback from a previously large decline."

"Despite August's gain, the trend for housing starts is still clearly to the downside," agreed Desjardins Group economist Benoit Durocher.

In fact, the pace of housing construction this quarter is already running well below the average of the second quarter, he noted.

"We can therefore expect residential investment to pull back for a third straight quarter," he said. "This should once again slow domestic demand, which means that the outlook for economic growth remains very small."

That weakness will also translate into interest-rate cuts by the Bank of Canada, he added, projecting the first of the cuts will come in December.

And earlier this week, a University of British Columbia study concluded that houses in most Canadian cities are sharply over-priced by as much as 25 per cent and which warned of a potential price correction, a view later echoed even by some realtors.

But the August housing construction report seems to fly in the face of such warnings, with both a modest two per cent increase in starts on single-family homes and a 25 per cent surge in apartment and condo unit construction starts.

Reinforcing expectations of a housing market slump, and in turn overall economic weakness Tuesday, were deepening stock market losses.

(prepared by Eric Beauchesne/Vancouver Sun)