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April decline in housing starts surprises economists

Housing starts were slower than expected in April, largely due to a decline in construction on multi-unit buildings such as apartments and condos, according to Canada’s national housing agency.

Housing starts were slower than expected in April, largely due to a decline in construction on multi-unit buildings such as apartments and condos, according to Canada’s national housing agency.

Canada Mortgage and Housing Corp. said the seasonally adjusted annual rate of housing starts was 179,000 units in April, down from 184,700 in March.

“Housing starts moved lower in April mostly because of decreases in multiple construction across the country and in rural starts,” said Bob Dugan, CMHC’s chief economist.

“The multiple segment market in Ontario and Quebec contributed the most to the overall decline in Canada.”

A 6.6. per cent increase in construction on multiple unit dwellings in March accounted for much of the uptick in starts reported that month.

The latest report was much weaker than economists had been expecting, as construction activity usually picks up in the spring.

“Overall, this is a weak report, considering that starts were in the 200-250K range before the recession,” Krishen Rangasamy, an economist at CIBC World Markets, said in a note.

“We expect housing starts to continue to soften (i.e. a 10 per cent or so drop in starts compared to last year) as home prices stagnate in light of forthcoming interest rate hikes and an anticipated slower second half of the year,” he said.

Overall, multiple unit starts were down to 96,000 in April from 101,000 the month before — surprising given there had been an increase in permits for multiple-unit buildings in March, Rangasamy said.

Douglas Porter, deputy chief economist at BMO Capital Markets, said he expected housing starts to pick up in April to 190,000 units after seeing a surprising surge in March residential building permits in data released last week.

Urban starts fell 1.9 per cent to an annual rate of 160,100 units in April, while rural starts were estimated at 18,900.

Urban multiples dropped 5.1 per cent to 96,000 units, while singles increased 3.4 per cent to 64,100.

Urban starts declined 9.4 per cent in Quebec and 8.0 per cent in Ontario, while they increased 5.3 per cent in the Prairies, by 10.4 per cent in the Atlantic region and by 23.5 in British Columbia.

The housing market has been cooling over the last several months following a post-recession surge in demand that led to bidding wars, higher prices and a pickup in construction of new buildings.

A drop in housing starts and sales of previously occupied homes had been widely anticipated. However, the expected drop in home sales across Canada this year will be less than previously forecast because of stronger sales of mega-homes in British Columbia in the first quarter, the Canadian Real Estate Association said Monday.

CREA now expects that unit sales for 2011 will dip 1.3 per cent to 441,100, less than the 1.6 per cent decline it forecast in February.

National sales activity of homes sold on CREA’s Multiple Listing Services should rebound by 2.6 per cent to 452,000 units in 2012, it added.

That’s in line with the previous forecast and the 10-year average for annual activity.

Sales activity in the first quarter was skewed by an unexpected surge in the sale of multimillion-dollar homes in Greater Vancouver. The average price forecast in the province and nationally has also been revised higher, as fewer sellers are putting their homes on the market, driving prices of the homes on the market higher.

The national average home price is forecast to rise four per cent in 2011 to $352,500 and by 0.9 per cent to $355,800 in 2012.

Vancouver residential sales are being pushed by foreign investment, which is showing no signs of slowing, said CREA chief economist Gregory Klump.

He said changes to mortgage regulations brought forward some sales activity that would have otherwise occurred later in the year.

“This is likely to result in a milder version of the volatility in sales activity that we saw last year.”

CREA expects home sales activity to regain traction after dipping in the second quarter as economic recovery and hiring continues.

Although interest rates are expected to increase later in the year, they will still be supportive of housing sales, as will continuing job growth, he added.

CREA has said that this year’s real estate market is poised to reflect a slightly less distorted version of last year, when sales spiked in the early months of the year before dropping to a trough in the summer as a string of regulatory changes impacted the market.