Canadian housing starts rose 6.1% to an annualized 196,700 in February from a slightly revised 185,400 (was 185,600) in January. Expectations going into the report had been for a smaller rise to 190,000 units.
The rise in total housing starts in February was almost entirely the result of increases in the multiple-starts segment. The relatively volatile multiples component was up 19.1% in February to an annualized 89,900 units. The more stable singles component rose as well, although by a much more modest 0.5% to 89,200 units. Rural starts were estimated at 17,600 in February, down from the 21,100 estimate in January.
Starts were boosted by a large 28.6% surge in Ontario, although gains were also recorded in Atlantic Canada (14.3%), the Prairie region (10.8%) and British Columbia (8.0%). Providing partial offset to these increases was a 14.1% drop in Quebec starts.
Today’s report that Canadian housing starts rose solidly in February, although largely driven by gains in the volatile multiples component, is in line with our expectation that housing activity in Canada will continue to pick up during the first half of 2010 following the surge in activity at the end of last year. This rise is expected to reflect still low interest rates and pent up demand built up over the first half of 2009. It is also expected to reflect a partial pick-up in housing activity leading up to the harmonization of the provincial and federal sales taxes in British Columbia and Ontario in July.
The implementation of the HST will raise the level of taxation on new housing, although primarily affecting higher-priced units. Improvement in residential real-estate markets is expected to continue to contribute to overall growth rates being sustained at an above potential pace throughout 2010, and we expect improvements in labour markets to continue. Be that as it may, the recent recession generated a large amount of economic slack, and January’s 8.3% unemployment rate serves as a reminder that the level of activity remains subdued. We expect that this slack will keep inflation moderate in the near term, allowing the Bank of Canada to follow through on its conditional commitment to maintain the overnight rate at 0.25% throughout the second quarter of this year.
Nathan Janzen, Economist, RBC Economics – www.royalbank.com