Canadian Housing Starts Decline by Less than Expected in January

• Housing starts decreased by 1.0% in January 2012 to an annualized pace of 197,900 versus expectation of a larger drop to 194,000.
• The overall decline was due to a 7.8% decrease in the urban single-unit start component. Urban multiple-unit starts edged up by 0.4% while rural starts jumped 16.4%.
• Sharp declines were seen in Atlantic Canada (-35.4%) and Quebec (-34.4%). British Columbia (28.0%) and Ontario (11.1%) posted strong gains while the Prairies saw a more modest increase (2.3%).
• The modest decline in housing starts in January leaves a slightly firmer pace of new home construction than expected to start the new year. We anticipate that residential construction activity will ease at a fairly gradual rate during the forecast horizon.

Canadian housing starts decreased by 1.0% in January 2012 to an annualized pace of 197,900 units from the unrevised 199,900 pace reported in December 2011. Market expectations had been for a slightly larger decline in the pace of new home construction to 194,000 annualized units. The overall decline in housing starts was due to a 7.8% decrease in the urban singles component (to 64,900 annualized units), which completely reversed the gains seen in the previous two months. Urban multiple-unit starts followed December's outsized 13.9% surge with a more modest 0.4% increase to 111,700 annualized units, while rural starts jumped 16.4% in the month to 21,300.

Urban starts plunged in Atlantic Canada (-35.4%) and Quebec (-34.4%) as sharp declines in the multiples components (-54.0% and -42.4%, respectively) weighed on activity. In contrast, continued strength in multiple-unit starts drove solid overall gains in British Columbia (28.0%), Ontario (11.1%), and also supported increased activity in the Prairies (2.3%).

The pace of new home construction in Canada continues along at a fairly robust clip, led by surprisingly persistent strength within the urban multiples component. While the better than expected showing in the starts data in the recent months likely partly reflects the generally milder than usual temperatures that have been prevalent across the country, the growth highlights the continued strength of activity within the Canadian housing market. With that said, today's report indicated a modest slowing in the pace of activity, with January's reading down from the 199,000 average seen in the fourth quarter of 2011. We anticipate that residential construction activity will continue to ease at a fairly gradual rate during the forecast horizon, reaching an annual pace of 183,000 in 2013.