July 10, 2018 / 1:39 PM / in 4 months

WRAPUP-Canada housing starts, building permits surge

OTTAWA, July 10 (Reuters) - Canadian housing starts surged in June as groundbreaking on multiple unit urban homes hit a record high, and building permits for May also jumped, reflecting renewed strength in housing after a weak spring, separate reports showed on Tuesday.

Construction starts on homes blew past expectations in June, increasing to 248,138 from May’s downwardly revised 193,902, on strength in multiples - typically condos, the Canada Mortgage and Housing Corp said.

Economists had forecast starts would rise to a seasonally annual adjusted rate of 210,000 homes in June.

“Looking through the volatility, the average number of starts over the past two months is in line with the pace of activity seen since last summer,” CIBC Capital Markets economist Royce Mendes wrote in a note to clients.

“Looking ahead, though, the weight of tighter lending standards and gradually rising interest rates likely mean that residential building activity is set to cool over the remainder of the year,” he added.

Mortgage stress-tests imposed in January by Canada’s big banks dampened home sales, adding to higher mortgage costs and a series of government measures aimed at cooling the long housing boom in the biggest cities, Toronto and Vancouver.

The Bank of Canada has raised interest rates three times since last July, and another rate hike could come on Wednesday.

But Canada’s condo market has remained robust, in part because buyers have been priced out of more expensive single-family homes.

The CMHC report showed a 46 percent surge in multiple-unit urban starts, eclipsing a 4 percent decline in groundbreaking on single homes.

“It is not too surprising to see demand tilted towards the urban multiple category given sustained demand for more affordable housing, especially in an environment of stricter mortgage requirements,” National Bank economist Kyle Dahms wrote in a research note.

A separate report from Statistics Canada showed the value of Canadian building permits rose 4.7 percent in May from April as strong intentions to build houses outweighed weakness in the non-residential sector. The gain erased April’s 4.7 percent decline.

The value of residential permits rose 7.7 percent in the month, the second-highest level on record. Five provinces posted an increase with Ontario and British Columbia reporting the largest gains.

The value of permits for multi-family dwellings climbed to a record high, while the value of single-family building permits rose for the first time in five months.

Permits for non-residential structures fell 0.7 percent. (Additional reporting by Dale Smith; editing by Jonathan Oatis)

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