Housing starts fell faster than expected in May, but not enough to spook economists.

Housing starts fell 4.3% in May to 155,000 units annualized, below expectations for a 2.5% decline. The drop reversed April’s rebound, and according to BMO Nesbitt Burns, “suggests that concerns over the economic slowdown is taking some of the shine off the home-building sector”.

Nevertheless, analysts are not discouraged by the drop. BMO Nesbitt Burns notes that, May’s results leave starts slightly above the average over the past twelve months, and on a year-over-year basis starts are more than12% higher.

RBC DS Capital Markets Research, says, “Although the contraction in residential construction activity was broadly based in May, it was coming off a lofty level in April. Both urban multiple and single starts declined. This does raises some concern over the more important singles component, which had already registered declines in each of the previous two months.”

On a provincial basis, Ontario was weak, but the decline was fairly broad-based. Only British Columbia rallied in May, up 8%.

Nevertheless, BMO Nesbitt Burns concludes, “Housing remains an area of relative strength, despite May’s below-expected level of starts. Even with the latest setback, starts are still on pace to easily surpass last year’s total.”

RBC DS says, “In spite of the fall in May, housing activity so far in Q2 remains solid and is still outpacing the 2000 average. However, the pace of activity will likely continue to ease as the year progresses, as higher mortgage rates and an easing labour market exact a toll on demand. Residential permit figures suggest the same, falling 7 times in the past 8 months and by 20% in the last three months alone.”