Housing starts fell less than expected in July, when they were down 10.1 percent to an annual rate of 254,966 units from an upwardly revised 283,498 in June.

Urban starts dropped 11 percent and multi-unit starts fell 12 percent. Single-detached urban starts were down four percent.

Regionally, Vancouver and Toronto areas drove the monthly decline, while Montreal, Calgary and Edmonton saw higher starts on the month.

Despite July's retreat, housing starts remained 7.4 percent above their 5-year average. In fact, the six-month trend for housing starts increased for the second consecutive month in July to 242,525 from 235,819.

The Canadian Home Builders' Association's second quarter Housing Market Index (HMI) released August 9 showed that despite a slight improvement, builders' confidence remains low due to buyers facing affordability issues and higher construction costs. While the second quarter index increased to 39.9 from 34.3 in the previous quarter for single-family builders, and to 41.0 from 33.5 for the multi-family index, both indices remained downbeat (below the 50 threshold).

In July, the construction sector shed nearly 45,000 jobs following another double-digit decline in June, according to data from Statistics Canada. Year-to-date, employment in the construction sector has decreased by 71,000.

Canada Mortgage and Housing Corporation (CMHC) expects housing sales, prices and starts to decline in 2023 from 2022. Labor shortages, materials and financing costs are all pushing activity down. Housing starts are projected to decline more than 19 percent to 211,917 this year from 2022. The alternative scenario sees a drop to below 200,000 (176,890), which the CHBA does not expect to materialize. A rebound is expected for 2024 and 2025.

Housing starts are expected to slow back to a 245,500 annual rate in July versus June's 281,373 which was much stronger than expected.

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.