Posted by: Daryl & Wendy Ashby | February 13, 2010

Upticks Anyone?

Housing starts beat estimates in January, rising to the highest level since October 2008, and prompting some to warn that the new supply and future higher lending rates could trip price gains in the second half of the year.

The Canada Mortgage and Housing Corporation said Monday that housing starts advanced 5.8% in January to a seasonally adjusted annual rate of 186,300 units from 176,100 units in December.

Analysts polled by Bloomberg had called for an annualized rate of 180,000 units.

It is the highest pace of construction since October 2008, when starts came in at 197,300 units, Scotia Capital economists Derek Holt and Karen Cordes wrote in a morning note.

“Supply is rapidly coming back into Canada’s housing market compared to the extreme shortfalls of last spring through summer, and that should have one increasingly concerned about house prices later this year,” the note cautioned.

“More supply, compared to the extreme tightness over last summer and into the fall, combined with higher future variable- and fixed-rates will combine to cool housing demand and pose downside risks to house prices over the second half of 2010 and into 2011.”

However another analyst, TD Securities economics strategist Millan Mulraine, said the numbers were skewed somewhat by building related to the Vancouver Winter Olympics.

“Overall, with the fourth monthly gain in residential construction activity in Canada, it appears that the new homes market is slowly coming back to life and may finally be benefiting from the resurgence in overall Canadian housing market activity,” Mr. Mulraine wrote in a note about the report.

“However, with part of the uptick in starts likely to be coming as a result of temporary factors, namely the surge in Olympic-related housing in B.C., we believe that this report overstates the true strength of the recovery in residential construction and expect to see a modest pullback next month.”

CMHC reported that the seasonally adjusted annual rate of urban starts rose 4.4% to 165,200 units in January from 158,300 in December. According to preliminary data, urban starts rose to 10,218 units on a monthly basis in January from 7,309 in January 2008.

The numbers soared in British Columbia, where the seasonally adjusted annual rate of urban starts rose 19.8%, while in Quebec rates rose 7.3%. Rates rose by 2.3% in Atlantic Canada, and by 1.5% in Ontario. In the Prairie region, urban starts decreased by 4.8%.

“Housing starts improved in both the singles and multiples segments in January,” Bob Dugan, chief economist at CMHC’s market analysis centre wrote in a release. “These increases are similar to the ones that occurred in December.”

Last month, CMHC reported that Canadian housing starts were up 5.9% in December from the month before, to an annual rate of 174,500 units, the most since October 2008.

The agency reported that in January, urban multiple starts rose by 5.7% to an annual rate of 76,300 units while single urban starts advanced 3.3% to 88,900 units.

Rural starts rose to a seasonally adjusted annual rate of 21,100 units in January from 17,800 in December.

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