Following their surprisingly strong performance in August (revised down to 214,255 units) housing starts showed further unexpected strength in September. A 7.7 percent jump on the month to 230,701 units was well above the market consensus and put September at the highest level since April 2012.
The headline rise reflected a 7.7 percent monthly gain in urban starts to 216,194 units, led by a 10.5 percent increase in multiples to 157,919 units. Singles were up just 0.8 percent at 58,275 units. Regionally there advances in Quebec, the Prairies, Atlantic Canada and British Columbia but Ontario was down.
Rural starts were estimated at 14,507 units, up from 13,559 units last time.
The housing market has been one of the brighter spots of the Canadian economy for some time now and the latest increase in the trend measure of starts (from 195,804 units in August to 202,506 units) points to plenty of momentum going into the fourth quarter. It is certainly not the be all and end all for BoC policy but today's report must reduce the likelihood of another monetary ease anytime soon.
Housing starts is the annualized number of new residential buildings that began construction during the previous month.
Housing starts are a leading indicator of economic health because building construction produces a wide-reaching ripple effect. This narrow piece of data has a powerful multiplier effect through the economy, and therefore across the markets and your investments. Home builders usually don't start a house unless they are fairly confident it will sell upon or before its completion. Changes in the rate of housing starts tell us a lot about demand for homes and the outlook for the construction industry. Furthermore, each time a new home is started, construction employment rises, and income will be pumped back into the economy.
Once the home is sold, it generates revenues for the home builder and a myriad of consumption opportunities for the buyer. Refrigerators, washers and dryers, furniture, and landscaping are just a few things new home buyers might spend money on, so the economic "ripple effect" can be substantial. Since the economic backdrop is the most pervasive influence on financial markets, housing starts have a direct bearing on stocks, bonds and commodities. In a more specific sense, trends in the housing starts data carry valuable clues for the stocks of home builders, mortgage lenders, and home furnishings companies. Commodity prices such as lumber are also very sensitive to housing industry trends.
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