Canada’s housing starts rise in June, homebuilding activity likely to slow modestly in 2017

Canada’s housing starts increased in June on a seasonally adjusted annualized basis. Housing starts rose to 213k units, recouping most of the ground lost in the past two months. This brought the six-month moving average close to a five-year high of 215k units. Gains were broad-based in the month with both single-detached and multi-unit starts rising 10 percent and 9 percent, respectively.

Region wise, strength stemmed greatly from Ontario and Quebec, while Newfoundland and Labrador and PEI also saw increases in the month. Ontario more than erased the losses sustained in May. On the other side, starts dropped in British Columbia and the Prairies, with Alberta and Manitoba accounting for most of the Prairie losses, noted TD Economics.

The recovery in housing starts in June puts the second quarter rate of homebuilding at 204k units – a drop of around 8 percent comparative to the first quarter. Homebuilding activity is expected to detract from growth in the quarter, said TD Economics. However, the overall economy continues to be on track to grow by close to 3 percent in the second quarter.

While there is no harm in the Bank of Canada waiting until October to raise rates, there is quite a possibility that the first rate hike is seven years would come sooner. If the rate hiking cycle is brought forward, Canadian housing market is expected to be slightly weaker than was expected. The effect of higher rates would be mainly seen in regions where affordability is the lowest.

“Homebuilding activity is expected slow modestly over the remainder of the year, but remain close to the 200K mark for the foreseeable future”, added TD Economics.

At 15:00 GMT the FxWirePro's Hourly Strength Index of Canadian Dollar was slightly bullish at 56.9192, while the FxWirePro's Hourly Strength Index US Dollar was neutral at 46.7295. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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