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Canada's hot housing market showed signs of cooling on Thursday as July housing starts slowed more sharply than expected, but housing prices were still climbing in June and analysts said a real slowdown may not come until late in 2012.
Groundbreaking on new homes fell to a seasonally adjusted annual rate of 208,500 units in July, according to the Canadian Mortgage and Housing Corp, a sharp slowdown from the 222,100 units in June and below the forecasts of analysts in a Reuters poll, who had expected 213,300 starts.
It was the first time in seven months that the rate of starts fell below the six-month trend, and a government decision to tighten mortgage lending from July was expected to contribute to further slowing as 2012 draws to a close.
"We do expect that the impact of tighter mortgage regulations announced in late June will slow housing demand, but the impact on the construction and starts data is unlikely to show up until later in the year," David Tulk, chief Canada macro strategist for TD Securities, said in a research note.
The hot market has sparked fears of a bubble, particularly in Toronto, Canada's largest city, and in Vancouver, as low interest rates fueled condominium building and double-digit annual price increases for existing homes.
The bulk of the pullback in July housing starts came in the multiple unit segment, where starts in the volatile condo market in British Columbia braked. That was in line with earlier data that has shown cooling in the Vancouver real estate market.
Multiple unit starts dropped 7.6 percent to 123,000 annualized units, the lowest level since February. Single unit starts fell 4.0 percent to 64,000 annualized units.
The slowdown in July pushed starts below the average for the second quarter and suggested the housing sector may not drive Canadian gross domestic product growth for much longer.
"The July lower-than-Q2 numbers represent the possibility that housing could fade out of the picture as a positive contributor to quarter-over-quarter GDP in the third quarter and even drag on growth, contingent on how the rest of the quarter shakes out," Scotia Capital economists Derek Holt and Dov Zigler said in a research note.
PRICES STILL CLIMBING
Mindful of the U.S. housing boom that was left unchecked until it burst, the Canadian government in July tightened conditions for homebuyers and mortgage lenders in a bid to deflate a possible bubble before it pops.
The changes took effect in July.
Other data showed that prices of new homes in Canada rose by 0.2 percent in June, the 15th consecutive month-on-month increase, on continued strength in large cities such as Toronto and Calgary, Statistics Canada data showed.
The advance matched market expectations and follows the 0.3 percent month-on-month-gain in May.
Prices in Toronto, which accounts for 26.6 percent of the entire market, rose 0.3 percent in June, while prices in Calgary, where the booming energy industry has fueled demand, were up by 0.5 percent.
New housing prices rose in 13 metropolitan regions, were unchanged in six and fell in two. Prices in June 2012 increased by 2.3 percent from June 2011 compared to the 2.4 percent year-on-year advance recorded in May 2012.