Canadian housing starts rise strongly in January, pace of homebuilding likely to soften in 2018

Canada recorded strong housing starts at the start of the year. Housing starts came in at a strong 216.2k in January, unchanged from the slightly downwardly revised December level. The underlying trend continued to be strong, with starts averaging 225k over the past six months. Multi-family segment’s starts remained stable at 135k while single-detached starts came in slightly higher at 64k, in urban areas.

The gains recorded in January were mainly concentrated in Ontario, where starts recovered countering much of the December tumble. Starts were also higher in Alberta and Saskatchewan. However, starts came in lower in the other 7 provinces, with marked declines in Quebec and B.C. and a collapse to half of their December levels in N.B. and P.E.I.

Starts dropped 28k in Montreal, marking the biggest one-month fall since at least 1990. Starts in Toronto market rose 14k to 40k, driven by the multi-family segment. Homebuilding is expected to remain skewed towards the multi-unit sector in Toronto in 2018, as healthy pre-construction condo sales in recent quarters materialize in actual starts. Starts in Vancouver dropped to 32k.

The strong start to 2018 is expected to give way to some weakening in the rate of homebuilding later this year, consistent with weaker permit issuance in recent months, noted TD Economics in a research report. Especially, tighter mortgage lending rules and higher mortgage lending rules and higher mortgage rates are expected to be a drag on housing demand and dampen new home construction.

Still, the longer-term fundamentals continue to be sturdy. The economy continues to be on a strong footing and the federal government intends to raise the number of immigrants in the years ahead. This should stimulate population growth, and underpin housing demand in years ahead, added TD Economics.

At 18:00 GMT the FxWirePro's Hourly Strength Index of Canadian Dollar was neutral at 33.8187, while the FxWirePro's Hourly Strength Index of US Dollar was neutral at 44.4803. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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