Housing starts, prices fall in summer months

New building and price data out Thursday underscores just how quickly the Canadian real estate market is cooling with economists cautioning the softness is here to stay and is likely to drag on economic growth.

August saw a 3% drop in nationwide building activity after prices dipped 0.1% in July.

The seasonally adjusted annual rate of housing starts was 183,300 units in August, according to the Canada Mortgage and Housing Corporation. That’s far below forecasts for 185,000 starts, a number that had already been downwardly revised from more than 189,000 units.

“Housing starts moved lower in August, reflecting a decrease in both single and multiple starts,” said Bob Dugan, chief economist at CMHC’s Market Analysis Centre.

Meanwhile, Statistics Canada’s New Housing Price Index slipped 0.1% in July in line with expectations. It was the first decrease in 13 months, StatsCan said.

The biggest contributors to the decline in the Canada-level index were Vancouver, London, Ont. and Greater Sudbury-Thunder Bay, Ont.Drops in many Ontario cities can partly be attributed to the introduction of the Harmonized Sales Tax, which is excluded in the StatsCan calculations.

Prices on new homes increased in only three of 21 urban areas. The largest increase was in Kitchener-Cambridge-Waterloo where price tags rose 0.6%.

“Cooling housing markets are a big part of why domestic economic activity is slowing in Canada,” TD senior economist Pascal Gauthier said in a note Thursday.

The bank expects housing starts to continue to ease, down near 170,000 units in the fourth quarter and bottoming in the 150,000-160,000 range by mid-2011.

Residential investment will be a drag on real gross domestic product for the next five-to-six quarters before picking back up in 2012, TD said.

The Conference Board of Canada’s Mario Lefebvre said Wednesday the housing market has “lost its lustre” but stopped short of saying it’s headed for a free-fall.

“This country will not experience home price declines to the tune of what we have witnessed in the United States over the past few years,” he said.

The think-tank says the Canadian housing market has generally been booming for about a decade now and a slowdown has been long anticipated.