Canada’s Surge in Multi-Unit Housing Shows Poloz Side Effect

Canada’s fastest pace of multiple-unit projects in almost three years led a surprise gain in housing starts for June, another sign of what the central bank dubs a side effect of cutting interest rates in a time of record consumer debt.

The beginning of work on projects such as condominiums and apartments rose 3.7 percent to 130,933 units, Ottawa-based Canada Mortgage & Housing Corp. said Thursday. That type of work has surged 53 percent since February, the month after Bank of Canada Governor Stephen Poloz made a surprise rate cut.

Poloz may lower his benchmark rate again next week to 0.5 percent after recent indicators showed unexpected declines in economic output and non-energy exports. The governor last week likened his January cut to “surgery to avoid death” and said the controversial move that risked stoking household debt “must be subordinate” to the bigger economic dangers.

“The momentum in the housing market through the spring and into the summer is undeniable,” said David Tulk, chief Canada macro strategist at Toronto-Dominion Bank’s TD Securities unit. “While the issue of household leverage remains a concern, it is secondary to growth fears and the very real risk of a technical recession in the first half of 2015.”

The multi-unit increase led the 3 percent gain in overall home starts to 202,818 units, CMHC said. Economists surveyed by Bloomberg News forecast a decline to 190,000 units. Single-family starts rose 2 percent to 57,787 units.

30% Overvalued

Poloz and Finance Minister Joe Oliver have said there is no housing bubble in Canada, even as condominium prices and construction in Toronto and Vancouver have swelled. The Bank of Canada said June 11 a crash in housing prices that are overvalued by as much as 30 percent remains the biggest risk to the country’s financial system.

Canadian households kept debt at almost record levels in the first quarter. Credit-market debt was 163.3 percent of disposable income compared with a revised record 163.6 percent in the fourth quarter, Statistics Canada said June 12.

There was another sign this week of a strong housing market in Canada’s biggest city. Two days ago the Toronto Real Estate Board said home sales rallied to a record for the third-straight month and the average price of a detached house in the core surged 14 percent to C$1.05 million ($830,000).

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