Housing starts increased to more than 150,000 units in August, as more affordable home prices have begun to stimulate demand in recent months, new research shows.

Canada Mortgage and Housing Corporation released data on Wednesday showing that housing starts increased to 150,400 units in August, from 134,200 units in July. The data beat economists’ expectations of 136,500 starts during the month.

“Housing starts are trending higher, reflecting improvements in both the single and multiple segments,” said Bob Dugan, chief economist at CMHC’s market analysis centre. “The improvement in housing starts is consistent with our expectation of a stronger second half for 2009.”

The seasonally adjusted annual rate of urban starts increased by 14% to 131,800 units in August. Urban multiple starts surged by 23.8% to 77,600 units, while urban single starts moved up 2.5% to 54,200 units.

British Columbia led the way in terms of urban starts, with a sharp 56% increase, compared to 16.1% in the Prairies, 3.8% in Ontario, 9.6% in Atlantic Canada, and 2.5% in Quebec.

Rural starts were estimated at a seasonally adjusted annual rate of 18,600 units in August.

Home ownership becomes more affordable
Meanwhile, a report from RBC Economics Research also released on Wednesday shows that in the second quarter, home ownership in Canada became more affordable for the fifth straight quarter.

“Following the biggest quarterly improvements on record in the first quarter and continued improvement in the second quarter, the national home affordability level has been restored to pre-housing boom levels,” said Robert Hogue, senior economist at RBC.

The RBC Housing Affordability measure captures the proportion of pre-tax household income needed to service the costs of owning a home. During the second quarter of 2009, the RBC affordability measure at the national level improved modestly across all housing segments, falling by 0.4 percentage points for standard condominiums and 0.6 percentage points for two-storey homes, detached bungalows and standard townhouses.

This brought the affordability measure to 39.1% for the benchmark detached bungalow, 31.5% for the standard townhouse, 26.9% for the standard condo, and 44.4% for the standard two-storey home.

But the RBC report noted that home prices are beginning to firm up as demand rises.

“The recuperative phase of the affordability cycle seems to be drawing to a close with housing prices firming up in many parts of the country and mortgage rates no longer trending downward,” said Hogue. “Supply of properties for sale is dropping as demand bounces back, which is working to heat up prices again in many parts of the country.”

The report shows that among Canada’s largest cities, homes are priciest in Vancouver. The affordability measure for a detached bungalow is 63.4% in Vancouver, compared to 46.5% in Toronto, 38.6% in Ottawa, 37.3% in Montreal and 35.7% in Calgary.

Resale activity in Vancouver staged a huge comeback through the spring and summer, with sales of existing homes more than tripling by July, after falling to their lowest levels in nearly 20 years at the end of 2008.

“While the significant drop in homeownership costs since the spring of 2008 has re-energized this market, housing is still expensive in Vancouver, relative to other cities in Canada,” said Hogue.

Meanwhile, homeownership affordability in Alberta deepened further in the second quarter, falling to levels not seen since before the housing boom. Existing home sales soared by more than 60% in the second quarter, hinting that tightening market conditions could lead to property value appreciation in the near future.

Affordability also improved considerably in Saskatchewan, but costs remain above long-term averages, while the easing of homeownership costs in Manitoba in the past year has fully repaired affordability compared to historical averages.

Ontario and Quebec also experienced solid improvements in affordability in the second quarter, which has supported upturns in these provinces’ housing markets in recent months, the report notes.

Affordability in Atlantic Canada also continues to improve, albeit at a more moderate pace than elsewhere in the country.