The Canadian housing market posted stronger-than-expected starts for July, but at least one economist cautions that the positive trend may not last.

Housing starts jumped 8.5% to 223,500 last month, considerably higher than most expectations. But there were other positive signs in the report from Canada Mortgage and Housing Corp. “Single starts, which are a good underlying barometer of conditions in the housing market, rose 4.7% to 103,100 while the more volatile multiples starts rose 9.5% to 90,800,” RBC Financial Group Inc. says in a report by John Anania, assistant chief economist.
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BMO Nesbitt Burns Inc.’s chief economist Sherry Cooper says “the show of strength in housing starts indicates that domestic demand is still holding up well, despite the weakness in exports in recent months. With the Bank of Canada trimming rates last month and clearly in no rush to start hiking again, the interest rate backdrop will remain very supportive for the housing sector. Starts for all of 2003 appear poised to challenge last year’s total of 205,700, despite the onslaught of dire economic headlines since the spring.”

TD Bank’s senior economist Marc Lévesque said the ingredients are in place “for residential construction activity to continue to power ahead over the next few months.” He notes that building permits are running at record-setting levels, and are showing no signs of letting up, and it predicts that demand is likely to remain strong with personal incomes growing and mortgage rates at low levels. “Only once mortgage rates start to climb more forcefully in 2004 will the housing market cool off in any meaningful manner.”

But RBC’s Anania warns that despite today’s positive news it may be premature to “revise up” the outlook for the housing market this year. “On a year-to-date basis, single starts are down 3.4% and existing homes sales down 4.3% relative to the same period last year. The trend for the housing market has flattened-out and is unlikely to pick-up,” he says. “The recent rise in mortgage rates and the softening labour market will take a bite out of affordability. As we progress through the remainder of this year, housing start numbers could come under some pressure.”