Housing starts hit road bump

Canadian housing starts dipped slightly in March but are clipping along at levels not seen since 2008, a level unlikely to be sustained into the second half, economists said yesterday.

On a monthly basis, housing starts slipped to 197,300 units in March from an upwardly revised annual rate of 200,400 units in February, Canadian Mortgage and Housing Corporation said yesterday. Seasonally adjusted starts for January were also revised up, to 189,000 units.

The March decline was blamed on a sudden drop in the always-volatile multiple-units segment.

Not since October 2008 has the number of annualized starts surpassed 200,000, added BMO Capital Markets economist Robert Kavcic. February starts were previously reported at 196,700 units.

Taken together, he noted, the recent three months' data represent an increase in the first quarter of 8.2%, following gains of 15.2% and 22.1% in the previous two quarters.

The first quarter's 8.2% pop represents a 37.3% compound annualized gain, say Scotia Capital economists Derek Holt and Karen Cordes.

"Are these levels of activity sustainable?" asked National Bank economist Matthieu Arseneau. "We do not think so."

Observers agreed the strong pace bodes well for the economy at large as the cost of home building spreads through the construction, financial, retail and other industries, but is unsustainable.

For one thing, said Pascal Gauthier, economist at TD Financial Group, "starts have been running above replacement levels for three months, and a fair measure of multiple units under construction are still in the pipeline to be completed this year."

For another, the current strength appears to be the result of buyers racing to lock in at low borrowing costs, get a ahead of tighter standards for mortgage qualification and beat the implementation of the HST in Ontario and B.C. in July, Mr. Kavcic said.

The March figures missed analysts' expectations of a 205,000 total.

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BY THE NUMBERS

197,300 Number of housing starts in March.

205,000 Analysts' expectations for March housing starts.

200,400 Housing starts in February, revised up from 196,700 by the Canada Mortgage and Housing Corporation.

189,000 Housing starts for January, also revised up.

8.2% Percentage increase three months of data represent for the first quarter.

15.2% Gains for previous quarter.

(prepared by John Morrissy/Financial Post/National Post)