* Housing starts slow more sharply than expected in July
* New home prices up for 15th month in a row in June
* Analysts see further market cooling late in 2012
By Andrea Hopkins
TORONTO, Aug 9 Canada's hot housing market
showed signs of cooling on Thursday as July housing starts
slowed more sharply than expected, but housing prices were still
climbing in June and analysts said a real slowdown may not come
until late in 2012.
Groundbreaking on new homes fell to a seasonally adjusted
annual rate of 208,500 units in July, according to the Canadian
Mortgage and Housing Corp, a sharp slowdown from the 222,100
units in June and below the forecasts of analysts in a Reuters
poll, who had expected 213,300 starts.
It was the first time in seven months that the rate of
starts fell below the six-month trend, and a government decision
to tighten the rules for mortgage lending, starting in July, was
expected to contribute to further slowing as 2012 draws to a
"We do expect that the impact of tighter mortgage
regulations announced in late June will slow housing demand, but
the impact on the construction and starts data is unlikely to
show up until later in the year," David Tulk, chief Canada macro
strategist for TD Securities, said in a research note.
The hot market had sparked fears of a bubble, particularly
in Toronto, Canada's largest city, and in Vancouver, as low
interest rates fueled condominium building and double-digit
annual price increases for existing homes.
The bulk of the pullback in July housing starts came in the
multiple unit segment, where starts in the volatile condo market
in British Columbia declined. That was in line with earlier data
that has shown cooling in the Vancouver real estate market.
Multiple unit starts dropped 7.6 percent to 123,000
annualized units, the lowest level since February. Single unit
starts fell 4.0 percent to 64,000 annualized units.
The slowdown in July pushed starts below the average for the
second quarter and suggested the housing sector may not drive
Canadian gross domestic product growth for much longer.
While momentum has cooled in recent months, BMO Capital
Markets economist Robert Kavcic noted year-to-date starts now
average almost 216,000 units, well above household formation of
"Canadian housing starts, particularly the multi-unit
sector, have ebbed from extremely robust spring levels," Kavcic
wrote in a research note. "With stricter mortgage rules likely
to cool demand in the remainder of the year, construction
activity should moderate further to a more sustainable pace."
Mindful of the U.S. housing boom that was left unchecked
until it burst, the Canadian government's move to tighten
conditions for homebuyers and mortgage lenders was a bid to
deflate a possible bubble before it pops.
But a slowdown will have broad implications for Canada's
tepid economic growth, which has relied on the housing sector to
offset slowing exports.
"The July lower-than-Q2 numbers represent the possibility
that housing could fade out of the picture as a positive
contributor to quarter-over-quarter GDP in the third quarter and
even drag on growth, contingent on how the rest of the quarter
shakes out," Scotia Capital economists Derek Holt and Dov Zigler
said in a research note.
PRICES STILL CLIMBING
Prices for new homes were still rising in June, however,
data from Statistics Canada showed on Thursday, up by 0.2
percent in that month on continued strength in large cities such
as Toronto and Calgary. It was the 15th consecutive
The advance matched market expectations and follows the 0.3
percent month-on-month-gain in May.
Prices in Toronto, which accounts for 26.6 percent of the
entire market, rose 0.3 percent in June, while prices in
Calgary, where the booming energy industry has fueled demand,
were up by 0.5 percent.
New housing prices rose in 13 metropolitan regions, were
unchanged in six and fell in two. Prices in June 2012 increased
by 2.3 percent from June 2011. The year-on year advance in May
was 2.4 percent.