Housing starts were relatively soft in August. A 182,703 seasonally adjusted annualised unit rate was 6.1 percent short of June's downwardly revised 194,663 mark, comfortably below market expectations and the lowest since January.
The headline decline was led by a 7.3 percent monthly drop in urban multiples to 111,378 units and a 3.7 percent decrease in singles to 56,501 units. The only region to see a rise was Quebec; all other areas reported falls versus their respective July levels.
Rural starts were estimated at 14,824 units, a 6.4 percent slide from the previous period.
August's decline in overall starts was steep enough to reduce their 6-month moving average rate to 195,640 units from 201,379 in July. However, this is still firm enough to suggest that in general the housing market remains quite robust, albeit possibly entering a period of slowdown.
Released by the Canada Mortgage and Housing Corporation (CMHC), the monthly housing starts data capture the annualised number of new residential buildings that began construction during the previous month. Statistics are provided for urban and rural areas, the former with a population of at least 10,000. CMHC estimates the level of starts in centres with a population of less than 10,000 for each of the three months of the quarter, at the beginning of each quarter. During the last month of the quarter, a survey of these centres is conducted and the estimate revised.
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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