MNI DATA ANALYSIS: Canada Housing Slower But Resilient

By Yali N'Diaye

     OTTAWA (MNI) - The latest data on Canada's housing market suggest the dual

monetary and macro prudential tightening is being absorbed with resilience

considering the regulatory and policy headwinds.

     While price appreciation on a 12-month basis has been slowing down, monthly

growth rates show stabilization.

     On the activity front, resales so far show the initial pull back in

response to more stringent underwriting standards in effect since the beginning

of the year did not escalate into a panic. 

     On the supply side, construction activity remains robust despite lower

housing starts in July.

     --RESALE ACTIVITY IMPROVES

     Existing home sales dropped 13.8% in January, when the new stress test

rules went into effect, and continued falling by 6.3% in February, 0.2% in

March, and 2.6% in April. 

     Sales have been recovering since then, by 0.6% in May and 4.1% in June. It

remains to be seen whether the trend will be confirmed in July, when data are

published next Wednesday.

     --PRICES STABILIZE FURTHER  

     Data on prices also show that the trend is stabilizing, with Statistics

Canada's new house price index hovering around 103.1 since February.

     Canadian new housing prices edged up 0.1% in June after remaining flat in

May, although Statistics Canada said it was largely reflecting "rising

construction costs" as softwood lumber prices increased more than 30%

year-over-year.

     On a 12-month basis, however, new house price growth continued to slow

down, reaching a pace of 0.8% in June, the slowest since February 2010.

     Still, despite higher mortgage rates and tighter housing finance

regulations, the housing market has had a gradual slowdown.

     --SOLID SUPPLY

     So far, the supply side has been strong despite the seasonally adjusted

annual rate of housing starts declining to 206,314 units in July from 246,200

units in June, bringing down the six-month trend as well.

     "Despite decreasing in July, the trend remains well-above historical

averages, reflecting elevated levels of multi-unit starts in most major markets

that has more-than-offset declining single starts," Canada Mortgage and Housing

Corporation said Thursday.

     --TARIFFS COULD PUSH UP PRICES

     Going forward, however, the impact of tariffs will be worth watching.

     In addition to higher mortgage rates and more stringent underwriting

standards, tariffs on imports of U.S. steel and aluminum in effect since July 1

could indeed impact upcoming price data on the upside, while putting a drag on

construction activity. 

     For now, CMHC estimates their data is "not showing an impact of the steel

and aluminum tariffs per se."

     The Canadian Home Builders' Association also told MNI the industry is "only

peripherally impacted."

     "These tariffs are having more impact in the high-rise condominium market

than in low-rise construction due to the requirement from rebar," a spokesman

said, referring to steel used to reinforce concrete.

     "However, these tariffs, combined with the impact on Canadian builders from

the earlier U.S. softwood tariffs (wood is prices in USD), are having an

unwelcome incremental impact on the cost of building new homes and

condominiums," he warned.

     "Due to the integrated natures of the building materials market in North

America, both these cost impacts and industry concerns will grow if the

situation persists or deteriorates further," he continued, stressing concerns

over the affordability of new homes.

     --CONSTRUCTION WORTH WATCHING

     The value of permits issued by Canadian municipalities decreased 2.3% to

C$8.1 billion in June, following a 4.8% gain in May, led by multi-family

dwellings, data from Statistics Canada showed Wednesday, suggesting slower

construction activity ahead.

     In addition, the Labor Force Survey showed Friday that employment in the

construction sector fell 12,300 in July, although this was on the back of a

27,200 gain in June.

--MNI Ottawa Bureau; +1 613 869-0916; email: yali.ndiaye@marketnews.com

[TOPICS: M$C$$$]