Mortgage rates, economic deceleration pull down housing starts

This followed the weakest January sales volume since 2015

Mortgage rates, economic deceleration pull down housing starts

The annual pace of new home construction nationwide slowed considerably last month amid higher mortgage rates and sluggish economic activity, according to new data from the Canada Mortgage and Housing Corporation.

The seasonally adjusted annual rate of housing starts noticeably shrunk from 206,809 units in January to 173,153 units last month, far below economists’ predictions of a pace of 205,000.

February’s starts data came in the wake of data from the Canadian Real Estate Association, which indicated that nationwide home sales fell to their weakest January since 2015.

“As a leading indicator of economic activity, February’s steep decline in housing starts may raise some eyebrows in Ottawa,” TD Bank senior economist Fotios Raptis wrote in a report, as quoted by The Canadian Press.

“Although housing starts seemed to be unscathed by the new B-20 regulations that took effect in January 2018, higher borrowing costs and tougher mortgage qualifying conditions may finally be taking a toll on new residential construction.”

Read more: Multi-family units are built more in leading markets

The annual rate of urban starts also suffered a significant 18% drop in February, down to 155,663 units. Urban multiple-unit projects (including condominiums, apartments and townhouses) declined by 20.2% to 116,284 units, while single-detached urban starts decreased by 10.6% to 39,379 units. Rural starts stood at 17,490 units during that month.

CIBC economist Royce Mendes warned that the rest of 2019 might bring significant headwinds against home construction activity.

“Residential investment was downright ugly in the fourth quarter, and the latest reading on housing starts only added to the bad news on Canadian homebuilding,” Mendes said.

“Prior to this reading, starts had seen a bit of a renaissance, rising back above 200,000 for four straight months. But the market has been a contending with the effects of higher interest rates and stricter lending standards, and a pace of 200,000 looked unlikely for the year as a whole.”

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