RBC ECONOMICS RESEARCH - DAILY ECONOMIC UPDATE – January 11, 2010
Housing starts jump 5.9% to an annualized 174,500
Canadian housing starts in December 2009 continued the upward trend seen since the recent trough in April, rising a greater than expected 5.9% to an annualized 174,500. Expectations had been for starts to rise to 161,800. For the year, housing starts averaged 145,200 in 2009, down 31.1% from 2008.
The overall increase was the result of a 6.4% rise in urban singles and a 6.7% gain in the volatile urban multiples component. Today’s report extends a strong upward trend seen since April 2009, particularly in the more stable and indicative singles component.
The strength was relatively broad based. Solid gains were recorded in Quebec (17.8%), Atlantic Canada (15.0%) and British Columbia (8.7%), while Ontario saw a more modest increase of 2.9%. The Prairies were the only region to have activity fall, dropping 3.8% in the month.
Low mortgage interest rates and improving consumer confidence are providing significant support for housing demand, leading to rising home sales and falling inventories of unsold houses. This in turn is pushing builders to increase the pace of new homes coming onto the market and spurring on growth in residential investment. Despite this recent pick up, however, housing activity levels remain well below recent peaks, and last week’s somewhat disappointing labour market report showed that there is still a considerable amount of slack in the economy that will take some time to wear away. Thus, although the housing market continues to improve, indications of unused capacity in the economy as a whole mean that the Bank of Canada is likely in no rush to start tightening policy. We continue to expect that the central bank will maintain its conditional commitment of holding the overnight rate at 0.25% through the middle of 2010.
David Onyett-Jeffries, Economist, RBC Economics
Thanks
Paul Ink
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