Economists at the Canada Mortgage and Housing Corp. say that weakness in the stock market is boosting the housing market.

The seasonally adjusted annual rate of housing starts slipped just 0.2% in July to 200,300 units from a revised 200,800 units in June, according to CMHC.

“The difficulties in the stock market are helping the housing market,” said Michel Laurence, chief economist at CMHC’s Market Analysis Centre. “Money has flowed out of stocks and into bonds, thus lowering interest and mortgage rates, and helping sustain housing demand.”

RBC Financial says that housing starts handily beat consensus expectations for July. The consensus was looking for about 189,000 units.

“The danger going forward, however, lies in data on residential building permits which came out earlier this week and showed a substantial drop off for June that was concentrated in multiples (townhouses, condominiums and apartments). Since permits are obtained before starts can occur, they act as a harbinger of things to come – a likely slowdown in housing market activity during the remainder of this year,” says RBC.

Urban multiple starts rose 4.6% to an annual rate of 77,300 units, and urban singles declined 4.6% to an annual rate of 97,800 units. Rural starts in July were estimated at an annual rate of 25,200 units. Rural starts in June were revised downward to an annual rate of 24,400 units, from a preliminary 25,900 units.

Actual urban housing starts for January to July this year are 27.1% higher than for the same period last year. The single-detached market increased 35.8% while multiples increased 16.6%.

The volatile multiple starts category rose by 4.6% in July, but the more important singles category fell 4.6%. “With singles tapering off recently, the housing market may be only red-hot, not white-hot, over the rest of the year,” offers BMO Nesbitt Burns.

‘The housing market’s continued strength owes much to the poor performance of the equity market and to mortgage rates that are keeping homes very affordable. Despite some signs that the economic recovery is slowing, the strong labour and housing markets give the market some evidence that the recovery still has some kick to it,” concludes BMO.