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RBC ECONOMICS RESEARCH – DAILY ECONOMIC UPDATE

Posted: July 15, 2012

 

Canadian housing starts unexpectedly increased in June
• Housing starts increased by 2.4% to an annualized pace of 222,700 in June 2021, thereby beating market expectations for a decline to 205,000.
• The rise in overall housing starts was primarily the result of a 4.1% rise in urban multiple starts, while rural starts posted a modest 1.3% increase. Urban singles starts edged down by 0.3%.
• We expect that starts activity will ease from the recent elevated levels during the remainder of this year and into next year as the housing market transitions to a moderate and sustainable path. This process may be accelerated somewhat in response to the tighter mortgage rules that were announced by the Federal government last month and came into effect yesterday; however, we believe that the housing market will continue to find support from an expanding economy, improving labour market, and low interest rate environment.
Canadian housing starts rose by 2.4% to an annualized pace of 222,700 in June 2012 from 217,400 in May (previously reported as 211,400). The increase comes in contrast to market expectations that were for a decrease in starts to 205,000. The volatile urban multiples component was primarily responsible for the overall increase, with starts rising 4.1% to 132,000. Rural starts also increased in the month, although by a modest 1.3% to 23,200, while urban singles starts edged down by 0.3% to 67,500.
The monthly gain in urban starts was largely attributable to increases in British Columbia (31.2%) and Quebec (17.3%), which in turn reflected a surge in urban multiples-construction activity in both provinces (43.7% and 24.1%, respectively). Atlantic Canada also saw a multiples-led surge (7.7%) in the month, while overall activity slowed in Ontario (-9.0%) and the Prairies (-6.9%), with these declines led by a pullback in multiple-unit construction in each region.
New home construction in Canada maintained a robust pace during the second quarter of 2012, averaging 230,700 annualized units. The level represents a whopping 11.8% increase over the 206,300 annualized units seen in the first three months of the year and marked the highest-quarterly reading since the third quarter of 2007. We expect that starts activity will ease from this elevated level during the remainder of 2012 and into next year as the housing market transitions to a moderate and sustainable path. This process may be accelerated somewhat in response to the tighter mortgage rules that were announced by the Federal government last month and came into effect yesterday; however, we believe that the housing market will continue to find support from an expanding economy, improving labour market, and low interest rate environment.
David Onyett-Jeffries, Economist, RBC Economics