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Real Estate Watch: Canadian housing market continues to defy gravity

Canadian housing starts surged unexpectedly in September while new home prices also beat forecasts in August, prolonging a housing boom in the country despite signs of weakness in other parts of the economy.

Groundbreaking on new homes jumped to a seasonally adjusted annual rate of 230,701 in September from a downwardly revised 214,255 in August, a report by the Canada Mortgage and Housing Corp showed.

That puts housing starts at the highest since August 2012, bucking forecasts for a slowing in construction to 200,000 starts, which economists have said is more in line with demographic demand.

“In the span of about three months, Canadian home building activity has gone from a controlled simmer to a rolling boil,” BMO Capital Markets senior economist Robert Kavcic said in a research note.

“We probably can’t sustain this level of home building activity for long before excess supply concerns start to build.”

Canada’s housing boom has defied predictions of a slowdown for years, buoyed by historically low borrowing costs that have offset slow economic growth and a technical recession in the first half of 2015.

The Bank of Canada has cut rates twice this year to help stimulate the resource-dependent economy amid weak oil prices.

The last time housing starts stayed well above 200,000 for a prolonged period, the Canadian government tightened mortgage lending rules to cool the market.

CMHC Chief Economist Bob Dugan said the projected annual rate of new household formation is 190,000, which “underscores the continuing need for inventory management to minimize the number of completed but unsold units.”

A separate report from Statistics Canada showed new home prices rose by 0.3 per cent in August from July on continued strength in Ontario, the most populous of the 10 provinces. That surpassed expectations for a 0.2 per cent increase.

Compared with a year earlier, prices were up by 1.3 per cent.

The Toronto and Oshawa region, which accounts for 28.8 per cent of the entire Canadian market, posted a 0.6 per cent gain, advancing for a seventh month.

Prices in Vancouver, another hot market, edged up by 0.1 per cent. The Alberta city of Calgary, which is sensitive to Canada’s weakened energy sector, showed no change from July.

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