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OTTAWA — Housing starts in Canada dropped to 213,900 in April, coming back to earth after a surprisingly strong first quarter, the Canada Mortgage and Housing Corp. says.
The April housing activity was somewhat weaker than economists' expectations for an annualized, seasonally adjusted 225,000 new houses, after March's robust 243,000 level. Analysts have been surprised at the strength of residential construction during the first three months of the year, and have been predicting a slowdown.
It's the second time this week that recent data have pointed to a slowdown in Canada's housing boom. Building permits fell 4.5 per cent in March from a month earlier, led by weakness in Alberta. And the Canadian Real Estate Association has said that it expects existing home sales to fall 11.5 per cent in Canada this year.
“This doesn't mean housing is collapsing; it just means the construction peak is best viewed through a rearview mirror,” said Derek Holt, economist at Bank of Nova Scotia.
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“This is still a strong number, but it fits our view that new home construction will cool this year.”
Most of the decrease in April reflected a drop in multiple starts, which had soared to their highest levels in 30 years earlier this year, said Bob Dugan, chief economist for CMHC's market analysis centre.
Urban starts in April fell by 16.3 per cent from March, to 185,400 units, CMHC said. Urban multiple starts fell to an annualized 113,900 in April from 141,000 in March, while single homes fell 11.3 per cent to 71,500.
Declines were also noted in all regions of Canada except British Columbia, where starts rose 17.1 per cent.
Still, CMHC noted that actual starts – not seasonally adjusted – were 3.3 per cent higher in the first four months of the year compared to the same period last year.
While most economists expect activity in the Canadian housing market to take a breather this year, no one is suggesting that Canada is heading the way of the corrections seen in the United States, the United Kingdom and some parts of Europe.
“Canada is bucking the trend in that regard,” Mr. Holt said.
That's because the federal government has liberalized the mortgage insurance market, and even CMHC has embraced innovative mortgage arrangements, encouraging home-buyers to take advantage of the new options, he said.
He said housing will likely be a drag on Canadian growth over the next few quarters, but mortgage innovations will temper the retreat.
“The Canadian housing market is largely expected to round out a decade long ride of terrific growth in 2008,” added Stewart Hall, market strategist at HSBC Canada, although he said bad weather at the beginning of the year probably makes housing activity look unduly weak.
Finance Minister Jim Flaherty said this week that he has a close watch on the growing tendency for homeowners to take on longer-term mortgages and use smaller down payments. But in an interview with Bloomberg News, he also said he believed the country's housing market is still “sound.”
“We have noticed of course there is a tendency now, and recently, to longer amortizations and smaller down payments,” the minister said in the interview. “It's something we're watching. It could become a concern over time.”
