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Builders on ice as housing starts fall 21%

Housing starts tumbled to a seasonally adjusted annual rate of 196,200 units in what turned out to be a chilly February from 248,500 units during a temperate January, Canada Mortgage and Housing Corp. said Thursday.

The month-over-month decline was nearly twice as large as forecast. According to a poll by Bloomberg, economists were expecting starts would fall just 11.5 per cent to 220,000 units.

Economists, however, were unfazed by the choppy numbers, saying that while the new housing market is slowing, a still-positive economic environment will ensure that it remains on solid footing.

Mark Chandler, fixed-income strategist for Royal Bank of Canada, said the month-over-month decline is “somewhat deceiving,” given the weather swings. He noted, for instance, that Torontonians have just experienced the coldest average temperature since 1979 in February.

The two-month housing start average of 222,000 is, in fact, on par with the fourth quarter of last year, Mr. Chandler said. “As a result, it is premature to say that residential construction would be a drag on growth in the first quarter.”

BMO Nesbitt Burns Inc. senior economist Bart Melek agreed, saying that as winter eases, “a still strong employment environment and low interest rates should support housing, albeit at slightly lower levels.”

Still, it is the first time Jan., 2005, that starts have dipped below 200,000. A 33 per cent decline in multiple-unit starts led February's fall, while the bellwether single-unit start components dropped 12.6 per cent.

The monthly fall was spread out across all regions of the country, with multiple-units in Ontario, the Prairies, Quebec and British Columbia all logging double-digit drops. Single starts fell everywhere except in B.C.

“Following the unusually strong surge in construction activity in January, which was partly attributable to the unseasonably warm weather, housing starts in February returned to levels more in line with expectations,” Bob Dugan, CMHC's chief economist, said in a release.

The blistering pace of new-home construction is forecast to ease this year. Mr. Dugan said that although starts will rebound in the coming months, they will slow to 209,500 units in 2007 from around 228,000 units started last year.

Jacqui Douglas, economics strategist at TD Securities, noted that starts fell to their lowest level since May, 2003 last month. Despite the jerky month-over-month data, the longer-term trends suggest the housing market is “still perfectly healthy,” she said.

The monthly numbers will “even out once we return to normal weather patterns,” Ms. Douglas said. She expects starts will come in “a little over” 200,000 during 2007.

Meanwhile, Statistics Canada said Thursday that new-home prices edged 0.3 per cent higher in January, after remaining unchanged in December. That lead to a year-over-year rise the selling prices charged by contractors of 10.1 per cent, down from 10.7 per cent the previous month.

“The decline in the pace of house price appreciation is to be expected after the unusually large gains in recent years, and should not be a cause for alarm,” Ms. Douglas said. “The Canadian housing market is on much more stable footing than its U.S. counterpart, and is merely returning to more sustainable growth levels.”

There are other signs that Canada's housing market is healthy.

On Tuesday, a government indicator of planned Canadian construction activity surged to a record in January. Statscan said that in all, municipalities issued $6.31-billion worth of building permits, an 11.3-per-cent jump from December. The increase blew past expectations for a 1.8-per-cent rise.

Stewart Hall, a market strategist at HSBC Securities in Canada, said the strength of that report suggests the February plunge in starts “is more a function of the freezing temperatures that settled over top of Canada than anything to do with builder intentions and the market for housing in general.”

In his opinion, the permits data points toward an active spring for builders.

Posted on Tuesday, March 13, 2007 at 07:58PM by Registered CommenterElaine in | CommentsPost a Comment | References1 Reference

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