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Friday, December 09, 2005

Canada's housing market still hot...for now

More evidence Edmonton and Alberta are booming... This article by Tara Perkins was published today by CP. (I've taken out some of the stuff that isn't relevant).

Canada's housing market is still thriving on a diet of low interest rates, but economists warn it will become sluggish as rate hikes take effect.

Construction of new homes increased in November, surpassing expectations and helping to erase October's drop, Canada Mortgage and Housing Corp. reported Thursday.

And the price of new homes continued to rise in October, according to figures released by Statistics Canada.

"The Canadian housing market continues to benefit from still-low interest rates and a very solid jobs outlook," said Sherry Cooper, chief economist at BMO Nesbitt Burns.

"However, as rates head higher, a gradual slowdown in housing-related activity is anticipated."
The price of new homes rose 0.7 per cent in October, bringing the 12-month price increase to 5.4 per cent, Statistics Canada said Thursday.

That was driven largely by higher costs for fuel, labour and building materials — especially lumber. Rising land values contributed to price hikes in only seven of the 21 metropolitan areas surveyed.

Calgary led the pack for the second month in a row, posting a price increase of 3.4 per cent. Edmonton was the runner-up, at 1.1 per cent. Both cities showed land price increases.

Randy Sterns, the Statistics Canada analyst who wrote Thursday's report, said "it's somewhat surprising that the pricing increases have continued to be as strong as they are."

"There has been somewhat of a slowdown in terms of building permits," he said. "But so far we haven't really seen a slowdown in the pricing."

CMHC said the seasonally adjusted annual rate of housing starts rose 7.5 per cent in November to 222,100 units, up from 206,800 in October.

That "full-throttle" reversal followed a string of positive economic indicators, including the creation of 50,000 full-time jobs in November, said TD Economics economist Sebastien Lavoie.
Lavoie noted that "the bulk of the increase came in Ontario, where starts bounced back by a whopping 36 per cent from last month."

November urban housing starts in the Prairies were up 3.1 per cent to 39,600 units, and in Quebec urban starts were up 1.8 per cent to 40,500 units, compared with October. Activity was down on the east and west coasts.

Lavoie said condo starts are so high that, "interestingly, 2005 is likely to be the first year on record where fewer urban single homes than multiples have been started, reflecting a greater scarcity of land in Canada's largest cities and the fact that condos are relatively affordable."

Bob Dugan, chief economist at CMHC's Market Analysis Centre, said "strong employment and income gains, coupled with low mortgage rates continue to bolster consumer confidence and demand for homes."

But "while demand for new homes remains strong, rising mortgage carrying costs will cause housing starts to fall short of the peak set in 2004."

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