Canada Looks to Housing to Avoid Recession

13 October 2011

Housing starts grew 7.3% year on year in Canada in September, fuelled by a surge in the condo sector. With this suggesting continued growth in the housing market, analysts believe it can still help the country avoid slipping into recession.


The Canada Mortgage and Housing Corp said on Tuesday that starts rose to a seasonally adjusted annualized rate of 205,900 units last month, beating the average forecast of a Reuters poll for 188,000. August starts were revised up to 191,900 from 184,700.


"Canadian housing remains quite healthy. Tailwinds including low mortgage rates and a solid job market will continue to be offset by headwinds including shaky consumer confidence and high housing valuations, pointing to only a slightly softer pace of activity in the year ahead," Robert Kavcic, an economist with BMO Capital Markets, said in a note to clients.


A leap in construction of multi-residential buildings including apartments and condos drove the growth, with the strongest growth in "multiples" being in Quebec, British Columbia and the Atlantic region.


"Multiple housing starts are expected to move back toward levels consistent with demographic fundamentals in the near term," Mathieu Laberge, a deputy chief economist with CMHC said in a statement.


According to the data urban construction starts grew 8% in September, while multiple urban starts grew 14.2%. This is compared to a 1.5% decline in the construction of single family housing in urban areas.


According to Emanuella Enenajor multiple starts are widely expected to scale down in the months ahead. But the CIBC World Markets economist said residential construction could still be a plus for GDP in the third quarter.

After a small contraction in the second quarter, analysts were fearful of a third quarter fall which would see Canada fall into the territory of recession. These fears were allayed in September, with reports like the one showing that employment in the country grew 6 times faster than expect on the month.

"In the context of a darker international landscape, the momentum in domestic activity reflected in the housing market will play an important role in helping the Canadian economy maintain its head start among developed market economies in emerging from the 2008 recession," said David Tulk, chief Canada macro strategist with TD Securities in a note.

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