Source: The Canadian Press

Canadian housing starts slipped in June in the latest sign of a cooling housing market as the sector pulls back from a period of heated demand.

The seasonally adjusted annual rate of housing starts was 189,300 in June, down 3.1% from May, according to data from the Canada Mortgage and Housing Corp. released Friday.

It’s a sign the housing boom is over and that activity will moderate in the latter part of the year and into next year, says Scotiabank economist Adrienne Warren.

“When a resale market tends to be fairly tight, there are more buyers than sellers and that leads to bidding wars and high home prices, (so) people tend to turn to the new home market as an alternative,” she said.

“Now that we are seeing … relatively balanced conditions in the resale market … there’s not the same incentives for builders to add new housing stock in this environment.”

Nevertheless, she says, the market retains considerable momentum, give June’s still-solid rate of starts.

CMHC also revised upward its figures for April and May — to a 3.7% gain in April (205,900 units) and a smaller 5.1% decline in May (195,300 units).

New home prices were up a slight 0.3% in May, the latest month for which figures are available, but Warren said she expects prices will continue to level out in coming months.

Economists attribute slowing demand to an unusually busy winter season in advance of tighten mortgage lending criteria, higher interest rates and the new harmonized sales tax in Ontario and British Columbia.

June’s decline was largely due to fewer multiple-unit starts _ condos and semi-detached homes _ in Ontario, though most of the country has seen a softening in demand for residential construction permits in recent months.

The June figures support economists’ view that housing activity has peaked for the time being, says BMO Capital Markets economist Robert Kavcic.

“Despite recent softness, overall starts still remain above the estimated 175,000 rate of household formation, helping to build the case for further weakness in the coming months,” Kavcic wrote in a note.

Builders are responding quickly to softening demand conditions and a more competitive pricing environment, Warren said.

That could be bad news for the construction industry_ a major driver of the economic recovery _ but the measured slowdown will help Canada avoid some of the sharp housing market corrections that are hampering recovery in the U.S. and other countries.

Meanwhile, a robust domestic job market _underscored by June’s employment figures that saw a better than expected 93,200 new jobs created _ will continue to support healthy housing demand, albeit on the more moderate side, Warren said.

She predicted starts would ease toward 175,000 units by the end of the year, in line with an underlying sustainable demographic and replacement trend.

Urban starts fell 2.6% to 167,000 units in June, with multiple-unit starts decreasing 5.8% to 89,200 units and single-unit starts edging up 1.4% to 77,800 units. Rural starts were estimated at 22,300 units in June.