Canada housing market gains steam

Building activity picks up as the central bank raises concerns over household imbalances

PUBLISHED : Wednesday, 10 December, 2014, 6:08am
UPDATED : Wednesday, 10 December, 2014, 6:08am

Canadian housing starts rebounded as expected in November and building permits edged higher in October, two reports showed, suggesting the housing market held momentum heading into the traditionally slower winter season.

A report from Canada Mortgage and Housing Corp showed the seasonally adjusted annualised rate of housing starts rose to 195,620 units from 183,659 in October. Analysts surveyed had forecast 195,000 starts.

"The result was close to expectations and continues to suggest that overall homebuilding activity in Canada is running about in line with what is needed to satisfy demographic demand and some replacement," Robert Kavcic, senior economist at BMO Capital Markets, said in a note.

A separate report from Statistics Canada showed the value of Canadian building permits edged up 0.7 per cent in October to C$7.53 billion (HK$51 billion), cooling after the previous month's sharp gain as construction intentions for residential homes slipped.

Economists expected a decline of 1.4 per cent after a surge of more than 12 per cent in September. The figures are seasonally adjusted.

The Bank of Canada has expressed concern about household imbalances, particularly a high level of debt accumulated in mortgages as Canadians stretch to get into the country's expensive housing market. Interest rates are near historic lows and are expected to stay there until late in 2015, fuelling heavy borrowing.

Mazen Issa, senior Canada macroeconomic strategist at TD Securities, said the central bank might say more about its concern in a report due today, but its unwillingness to use interest rates to slow debt accumulation might mean housing continued its upward march.

"[Today's] financial system review will likely explore the issue of household imbalances further, but the longer that policy remains ultra-accommodative [despite the economy persistently growing above potential and the conventional output gap effectively closed], the greater the risk that household imbalances accumulate," Issa said in a research note.

Housing starts had slowed from a cyclical peak of about 215,000 a year in 2012, averaging a pace of about 190,000 so far this year, Kavcic noted.

Ontario, Quebec and British Columbia showed solid building in November but he said slowing was expected in Alberta in the months ahead as the slide in oil prices slowed the provincial economy.