Canadian housing starts fell more than expected in March and building permits dropped sharply in February, according to data released on Tuesday that suggests the country's robust housing market is cooling. Volatility in the housing data and an especially hard winter may explain some of the unexpected weakness in the data, economists said. But the figures still bolstered expectations that home building was starting to slow after a boom that observers have warned is unsustainable.
"The steep decline in housing starts in March was at least partly weather related, but the bigger picture is an ongoing cooling of residential construction activity in Canada," BMO Capital Markets senior economist Robert Kavcic wrote in a research note. Housing starts fell 17.7 percent in March to a seasonally adjusted annualised rate of 156,823 units, well below an economists' forecast for 191,000 units.
February's housing starts were also downwardly revised to 190,639 from the 192,094 originally reported, Canada Mortgage and Housing Corp (CMHC) said. A separate report from Statistics Canada showed the value of building permits tumbled by 11.6 percent in February from January as construction intentions for multifamily homes fell sharply and in every province.
The decline was steeper than the 2.7 percent drop forecast by analysts in a Reuters poll and followed an 8.1 percent increase in permits issued in January. Canada escaped the US housing crash that accompanied the 2008-09 financial crisis, and home prices have risen sharply, if not steadily, in the past five years despite moves by the federal government to tighten mortgage lending rules.
While some economists have predicted the Canadian market will crash, most have said they expect sales and new construction to level off in 2014 and 2015 as mortgage rates rise, with prices continuing to tick slowly higher. Still, some the big drop in March housing starts was shrugged off as being weather-related and yet another bump in housing data that has been seen as unsteady. "While we expected a slowdown in residential construction going forward, such a dramatic move month-on-month brings us below a pace that would be in-line with household formation," CIBC World Markets economist Nick Exarhos wrote in a research note.
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