Canadian Housing Starts Drop 3.1% in June

Canadian housing starts fell 3.1% to 189,300 annualized units in June. This result marks the second consecutive monthly decline, although the level of starts was revised up in both May and April to 195,300 (was 189,100) and 205,900 (was 201,800), respectively. Market expectations had been for a slight increase in the level of starts in June; however, with the revisions to previous months, the level of starts was only slightly below market expectations for a 190,500 pace going into the report.

The drop in the level of total housing starts in June was the result of a 5.8% drop in the multiples component that built on the 4.9% decline recorded in May. This drop was only partly offset by a 1.4% rise in single-unit starts in the month. The rise in the singles component marks the first increase in three months, following sizeable declines of 11.9% and 8.5% in May and April, respectively. Rural starts were estimated at a 22,300 annual rate in June, a 6.7% decline from the 23,900 May level.

Starts were up in Quebec (11.6%), the Prairie Region (8.6%) and British Columbia (6.3%). Declines were largely concentrated in Ontario (-17.4%) and Atlantic Canada (-19.8%); however, the decline in Ontario was notably concentrated in the fairly volatile multiples component. Starts in the more stable singles component in Ontario were actually up 5.3% in the month.

Despite of today's reported decline for June and with upward revisions to previous months, the level of housing starts averaged a solid 196,000 annualized pace compared to the second quarter of 2010. While this marks a moderate decline in activity from the 197,800 average level in first quarter, the level of activity remains well above the 179,800 level recorded in fourth quarter of last year. The improvement over the first half of this year in part reflected a recovery in household incomes and confidence, along with the historically low level of interest rates, as the Canadian economy emerged from recession. It likely also reflected some construction activity that otherwise would have occurred later being pulled forward ahead of the implementation of the HST in Ontario and British Columbia on July 1 that increased the price of higher-priced new housing units, along with various real estate services, in those provinces. This factor will likely weigh on construction activity going forward with starts expected to average about 180,000 during the second half of this year; nevertheless, the solid 93,000 gain in June employment reported earlier today reinforces our view that this will likely not prevent overall GDP growth from averaging close to a 3.5% annualized rate compared to the same period following an expected 3.0% gain in the second quarter.