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Wednesday, June 9, 2010 - Alberta housing starts take slight dip in May

EDMONTON — Home construction dipped in May, but it was still the 11th consecutive month of year-over-year improvements.

ATB Financial senior economist Todd Hirsch said residential construction seems to be succumbing to the interest-rate increase after a few months of reasonably strong activity.

"Consumer confidence may have also been shaken somewhat by a darker global economic outlook that rocked oil prices last month."

With the probability of rising mortgage rates, and global turbulence shaking energy prices, real estate in Alberta may remain a bit flat for the rest of the year, Hirsch said.

"Nonetheless, even with the pullback in May, Alberta's housing market remains in much better shape than it was last year."

There were 989 starts in the Edmonton metropolitan area, compared with 1,407 in April and 346 in May 2009, Canada Mortgage and Housing Corp. reported.

Total starts so far this year hit 4,428 units, more than three times the 1,462 units in the same period last year.

Builders of single-detached homes have been particularly busy, with starts up 123 per cent to 540 units year-over-year in May, although down from 620 in April. Singles for the year are up threefold to 2,554 from the 849 units last year.

Richard Goatcher, CMHC's senior Edmonton market analyst, said builders have been working to replenish inventories since last fall due to firm demand and a scarcity of completions.

While single starts have been strong, multi-family units are also starting to recover, he said.

"Following a relatively slow first quarter, apartment starts in particular have shown a marked improvement in the past two months," Goatcher said.

Housing starts in Alberta's seven largest centres reached 2,127 units in May, up from 962 in May 2009, with Grande Prairie and Red Deer leading the way.

Nationally, May starts slipped 6.3 per cent from April, with construction down everywhere except Atlantic Canada, suggesting housing construction in Canada is quickly coming off the boil.

Douglas Porter, deputy chief economist at BMO Capital Markets, cited the fact that the closely watched single-family component of starts fell for the second month in a row, off 14.1 per cent after an 11.4-per-cent slide in April and now at an eight-month low. Multiple-unit starts also fell 5.6 per cent.

Economists said tighter lending criteria, higher interest rates, reduced affordability and the pending implementation of the harmonized sales tax in Ontario and British Columbia were all to blame for the May slowdown.

"A bigger culprit, however, is easing price conditions in the broader housing market," said Derek Burleton, deputy chief economist at TD Economics.

Sales are slowing, more listings are coming onto the market, and "accordingly, the incentive to feed the market with more units than the replacement rate can support will continue to diminish," Burleton said.

TD forecasts that resale home prices in Canada will drop six to seven per cent over the next four to five quarters.

Even with May's declines, home construction is still running hotter than the market needs, said Porter, pointing out that May's total lies well below the volume needed to meet the demands of new families, currently 175,000 homes a year.

Burleton calls for the number of starts to moderate in the second half to an annualized pace of 160,000 to 170,000 homes.

Still, Tuesday's data won't be enough to stop Bank of Canada governor Mark Carney from raising interest rates another 100 basis points in 2010, as some slowing was widely anticipated, said RBC assistant chief economist Paul Ferley.

The central bank increased its key rate by 25 basis points to 0.5 per cent last week, after holding borrowing costs at a record-low level for nearly three years in an effort to pull the economy out of recession.

posted in News at Wed, 09 Jun 2010 07:39:18 -0600

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