House price increases slow in July

The slowdown in the Canadian resale housing market was “dramatic” last month, but the sector got a boost Tuesday from statistics that show new home construction is not falling as fast as anticipated.

In fact, Ottawa, which often goes against the trend in economic indicators, saw housing starts increase by 42 per cent in July as builders stepped up apartment projects. CMHC said July was Ottawa’s busiest construction month so far this year.

Adrienne Warren, an economist with the Bank of Nova Scotia, said residential real estate began to slow globally in the second quarter after demand and pricing recovered in the first quarter.

“The slowdown has been the most dramatic in Canada,” said Warren, pointing to data that saw home prices climb only 6.8 per cent in the second quarter from a year earlier compared with a 16.6 per cent year-over-year increase in the first quarter. She said increasing listings are moving market conditions back in the favour of the buyer.

However, despite a drop in demand, Warren said prices should remain just flat, as opposed to falling, over the next year. “We are in a good position where we are already seeing if sellers are not getting the types of selling conditions they want they are pulling their houses off the market,” said the economist.

“I don’t think you are going to get into a steeply buyers’ market, maybe a slight buyers’ market, assuming the Canadian economic recovery continues and the job market improves.”

Canada Mortgage and Housing Corp. released new data Tuesday that showed 189,200 new homes were built in July on a seasonally adjusted annualized basis, a 1.6-per-cent drop from June.

However, the number of starts surpassed the consensus expectation of economists for 185,000 starts for July.

“Our expectations have not changed, it’s moderation for the rest of the year,” said Gustavo Durango, a senior economist with CMHC.

“These numbers don’t support too strong a view of things heading into the toilet. Things are not crashing.”

In Ottawa, work started on 763 housing units, with apartments up 168 per cent to 297 units and row housing construction up 25 per cent to 208 units.

Single-family housing activity dipped slightly to 214 units.

Sandra Pérez Torres, senior CMHC analyst for the capital region market, said “intense activity” was seen in all housing types, but most notably in the apartment segment.As well, townhomes reached the highest year-to-date totals in 15 years, driving total housing starts higher.

“Job growth has reached record levels in recent months,” added Pérez Torres, “helping to maintain activity in the Ottawa housing market. First-time purchasers were still prevalent as the demand for townhomes and apartments has been the primary driver of growth so far this year.”

The new construction accelerated despite signs that Ottawa’s resale market, like the national market, is cooling rapidly. Sales fell 27 per cent in July and have been slowing since May.

Some of the new construction may have been driven by strong orders for new units in an effort to avoid the impact of the harmonized sales tax on some classes of new housing.

Apartment starts were strongest inside the boundaries of the old city of Ottawa. Townhouse and apartment starts were strong in the suburbs.

For the first seven months of 2010, new housing starts of 3,403 units are running 26 per cent ahead of a year earlier, with row housing the strongest, up 47 per cent.

On the Gatineau side, housing starts fell seven per cent in July, and are down eight per cent for the year.

It was the third straight month that new home construction dropped across Canada, but Durango pointed out the declines have been modest. CMHC has forecast starts to drop to 182,000 for the year, leaving construction to slow a bit.

Dina Cover, an economist with Toronto-Dominion Bank, said the latest drop nationally was to be expected.

“The moderation in starts is consistent with a cooling in the overall housing market. Existing home sales have been trending down since the start of this year — with the decline accelerating in May-July — while prices have been losing modest ground since May. In turn, lower home prices have dampened the incentive for homebuilding. With prices expected to slide a bit further, fewer home starts are likely to hit ground.”

Source: The Ottawa Citizen