CAD Analysis: Canadian Housing Starts Drop in October

ForexNewsNow | Published on November 8, 2010 at 10:25 am

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indicator analysis - U.S. building permitsNEW YORK (Forex News Now) – In global forex trading news, the Canadian government released a disappointing housing starts report on Monday, renewing fears that the Canadian housing market is set to fall further.

The Canadan Mortgage and Housing Corporation announced that the annual rate of housing starts in October came in at 167,900 units, down from the previous September rate of 185,000.  Consensus estimates placed the expected rate for October at 180,000.

The 9.2% drop in the report constituted the largest decline in the housing starts rate since April, 2009.

Bob Dugan, chief economist at CMHC’s Market Analysis Center, commented on what drove the numbers down for October. “Housing starts moved lower in October due to a decrease in urban single starts in all regions, with the exception of Atlantic Canada. Both single-detached and multiple starts decreased last month.”

The rates of decline for single-family and urban multiple starts were 8% and 15%, respectively.

The Canadian housing market has experienced moments of weakness and is considered to be moderately overvalued, but experts state that it is not in the same condition as the U.S. market was three years ago before the bubble burst.  The American market created a housing bubble as prices were artificially escalated beyond what the market could bear – resulting in a drastic drop in prices that still has not reached bottom in most areas of the country.

In contrast, economists Earl Sweet and Sal Guatieri believe that the Canadian market is largely devoid of speculation.  They calculate that the market is overpriced by 11%, down from an 18% rate last year.

“Though overpriced, the absence of widespread speculation and egregiously loose credit standards suggests the market is not in a bubble. Instead, Canada’s housing market remains reasonably affordable because of exceptionally low interest rates,” wrote Sweet and Guatieri.

As a result of this global forex trading news, the Canadian dollar fell 0.39% against the dollar, which rose to 1.0042.  The loonie did manage to gain 0.54% on the euro, though, although this increase was mostly due to resumed concerns about debt problems in the euro zone periphery.

Canadian futures are down 0.33%, to 0.9955.

The drop in housing starts for October is worrisome to some extent for investors who fear a repeat of the American housing market collapse and subsequent recession.  However, today’s global forex trading news is not overly indicative of such a move, and investors should look at the figures with caution, not panic.



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