Canadian housing starts fell 4.7% in May, below the 200,000 units mark. The result was more or less in line with economist expectations.

“While starts were down for the third consecutive month, the fall was from super-heated levels in February, and May’s total was well within the range of starts over the past year and a half,” said BMO Nesbitt Burns. “Most of the decline was concentrated in the volatile multiples category, which fell 9.1%. The more important single-unit sector slipped just 2.4%. Activity remains solid, but it clearly is coming off the sizzling highs reached in the second half of last year.”

TD Bank cautions, “One should not interpret the report as signaling any real weakness in new home markets. On the contrary, the level of starts remains robust, supported by low mortgage rates and healthy gains in personal income. The main message is that construction is moderating. This is a desirable outcome, as the prior pace of building was unsustainable.” It predicts that new home construction will moderate further, but will remain at historically strong levels.

“Weaker employment growth may dampen demand in the near term. And, with the Bank of Canada likely on hold for the rest of this year, there will be little rush to lock in rates. Nevertheless, with mortgage rates at multi-decade lows, demand for new homes will remain healthy,” says TD. “And, even with monetary policy on hold, a sell-off in bonds before the end of this year is likely to translate into modestly higher fixed rate mortgages, which could encourage some buyers to jump into the market in the latter part of 2003. Starts are expected to decline further in 2004, dropping to 175,000 units, reflecting a rising trend in both variable and fixed mortgage rates.”

RBC Financial says that, “Housing demand still remains fundamentally healthy in Canada, and will continue to be so, especially as mortgage rates creep to new historical lows. Still, it is clear that some of the heat is starting to come off from one of Canada’s fastest growing segments of the economy.”

Nesbitt is a little gloomier, saying, “The recent drop in mortgage rates will help avert a major retrenchment in Canadian housing, which will likely be the last sector of the economy to come under strain. However, weaker job markets and creeping caution suggest that we have seen the peak in home-building and home sales for this cycle.”

http://www.newswire.ca/releases/June2003/09/c0771.html