Analysts shrug off housing starts plunge

Analysts shrug off housing starts plunge

Rakshande Italia
CanWest News Service
Friday, March 09, 2007
TORONTO -Canadian housing starts fell by a relatively steep 21 per cent in February, but analysts said the downturn should not be a cause for concern.
Housing starts dropped to 196,200 units last month from 248,500 units in January, the Canada Mortgage and Housing Corp. (CHMC) said Thursday.
The seasonally adjusted annualized rate compiled by CHMC, however, does not surprise housing experts. Analysts said that high employment figures, a booming economy in Western Canada and a lower loonie still show the economy is strong.
Below-seasonal temperatures were a contributing factor to the downturn, they added, noting that a return to more normal weather, coupled with low interest rates and innovative mortgage schemes now in the market, should support housing. Still, all agreed there is a slowdown in the market this year compared with last year.
"Given the fact that much of the adjustment is weather-related and due to a likely slowdown in job creation from extremely high levels, this correction is very much a giving back of borrowed activity," and does not point to a deepening downward trend," Bart Melek, senior economist at BMO Capital Markets, said.
Melek said that the unseasonably warm weather throughout much of January, and a very strong employment environment, boosted starts above sustainable levels that month. He added that areas such as Alberta and B.C. tended to do better then Central Canada, as the boom there obviously boosted jobs and housing.
Housing starts dropped in all regions last month, with double-digit declines in Ontario (32.8 per cent), the Prairies (25.4 per cent), Quebec (15.2 per cent) and B.C. (18.6 per cent).
Multiples also declined in all regions except in the Atlantic. Single starts were down everywhere except in British Columbia.
The numbers in rural and urban areas were down 5.2 per cent in the first two months of 2007 compared with the same period in 2006.
TD Bank Economist Pascal Gauthier said that regional disparities aside, there seems to be a soft landing in most major metro markets, especially in Ontario and Quebec.
"However, the Canadian housing market has been faring better than its U.S. counterpart largely because it has not been driven to the same extent by speculative investment or higher risk sub prime lending," he added.
Gauthier said Canada's hottest market, Alberta, is cooling, and the slowdown is proceeding in an orderly fashion.
Canada's new housing price index, released Thursday by Statistics Canada, shows that the year-over-year increase for Alberta edged down to 40.6 per cent in January, from 42 per cent in Dec. The year-over-year increase for the nation went down to 10.1 per cent in January, from 10.7 per cent in December 2006 .
Gauthier said the resale market continues to hold strong and constitutes the bulk of the market.
Financial Post
irakshande@nationalpost