UPDATE 2-Canada housing starts rise 5.8 pct in January

* Housing starts up 5.8 pct, beating consensus forecast

* Highest rate of construction since October 2008

* December starts revised up
(Adds sales outlook, economist’s comment)

By Andrea Hopkins

TORONTO, Feb 8 (BestGrowthStock) – Canadian housing starts rose by
a larger than expected 5.8 percent in January, the fourth
straight monthly gain, offering further proof of housing’s
strength in an otherwise tepid economy.

Housing starts rose to a seasonally adjusted rate of
186,300 units from an upwardly revised 176,100 units in
December, Canada Mortgage and Housing Corp said on Monday.

The number of starts was above the consensus expectation of
analysts for 180,000 units. The December figure was revised up
from 174,500 units.

The pace of new home construction remains the strongest
since October 2008, and economists warned that the boost in
building could push prices lower, especially since mortgage
rates are poised to rise later in the year.

“Supply is rapidly coming back into Canada’s housing market
compared to the extreme shortfalls of last spring through
summer, and that should have one increasingly concerned about
house prices later this year,” Scotia Capital economists said
in a research note.

“More supply, compared to the extreme tightness over last
summer and into the fall, combined with higher future variable
and fixed (mortgage) rates will combine to cool housing demand
and pose downside risks to house prices over the second half of
2010 and into 2011,” they added.

CMHC said housing starts improved in both the single-family
and multiple-family segments in January, with increases similar
to the ones that occurred in December.

Urban starts rose 4.4 percent to 165,200 units in January.
Groundbreaking on multiple family dwellings was up 5.7 percent
to 76,300, while single starts were 3.3 percent higher at a
88,900 annual rate.

The active start to 2010 sets the stage for another
positive contribution to first quarter economic growth.

“If the January pace sets the tone for the whole quarter,
then housing starts will be up another 12 percent
quarter-over-quarter, non-annualized,” Scotia Capital said.

But TD Securities economist Millan Mulraine said the report
may be exaggerating the strength in housing, with a big uptick
in some regional numbers linked to home building related to the
February Olympic Games in Vancouver, British Columbia.

SALES FORECAST TO RISE

January’s seasonally adjusted annual rate of urban starts
increased by 19.8 percent in British Columbia, 7.3 percent in
Quebec, 2.3 percent in Atlantic Canada, and 1.5 percent in the
Ontario. In the Prairie region, the seasonally adjusted annual
rate of urban starts fell 4.8 percent.

“Overall, with the fourth monthly gain in residential
construction activity in Canada, it appears that the new homes
market is slowly coming back to life and may finally be
benefiting from the resurgence in overall Canadian housing
market activity,” Mulraine said in a research note.

“However, with part of the uptick in starts likely to be
coming as a result of temporary factors, namely the surge in
Olympic-related housing in B.C., we believe that this report
overstates the true strength of the recovery in residential
construction and expected to see a modest pull-back next
month.”

A separate report by the Canadian Real Estate Association
showed a brighter outlook for home sales in 2010.

“With Canadian economic growth rebounding from the
recession, the unusually severe decline in sales activity in
early 2009 is not expected to recur in 2010. Annual activity in
2010 is forecast to be well above the previous year’s level as
a result,” CREA said in its forecast.

The group said it expects record sales 527,300 units
nationally in 2010, up 13.3 percent from 2009. Low interest
rates early in 2010 will fuel demand through the first half of
the year, before activity trends downward later in the year.

Home sales activity was forecast to decline 7.1 percent to
490,100 units in 2011, CREA said.

“Although interest rates are expected to rise, they will
still be low enough to keep affordability within reach for many
homebuyers requiring mortgage financing, and support overall
housing demand,” CREA President Dale Ripplinger said in a
statement.

The national average home price was forecast to climb 5.4
percent in 2010, reaching a record C$337,500 ($315,420), before
easing 1.5 percent in 2011.

Stock Investing

($1=$1.07 Canadian)
(Reporting by Andrea Hopkins, Editing by Peter Galloway)

UPDATE 2-Canada housing starts rise 5.8 pct in January