The annual pace of housing starts slowed in February as demand softened due to higher mortgage rates and less stimulative economic conditions.

The Canada Mortgage and Housing Corporation said on Friday that the seasonally adjusted annual rate of housing rates dropped to 173,153 units compared with 206,809 units in January.

“As a leading indicator of economic activity, February’s steep decline in housing starts may raise some eyebrows in Ottawa,” Fotios Raptis, TD Bank senior economist, wrote in a report. “Although housing starts seemed to be unscathed by the new B-20 regulations that took effect in January 2018, higher borrowing costs and tougher mortgage qualifying conditions may finally be taking a toll on new residential construction.”

Royce Mendes, CIBC economist, said that 2019 is shaping up to be a tougher year for homebuilding.

“Residential investment was downright ugly in the fourth quarter, and the latest reading on housing starts only added to the bad news on Canadian homebuilding,” Mendes said. “Prior to this reading, starts had seen a bit of a renaissance, rising back above 200,000 for four straight months. But the market has been contending with the effects of higher interest rates and stricter lending standards, and a pace of 200,000 looked unlikely for the year as a whole.”

The overall decline in the pace of housing starts came as the annual rate of urban starts fell by 18% last month to 155,663 units. The pace of multiple-unit urban projects such as condos, apartments and townhouses dropped by 20.2% to 116,284 units, while single-detached urban starts fell by 10.6% to 39,379 units.

Meanwhile, rural starts were estimated at a seasonally adjusted annual rate of 17,490 units, according to a report by The Canadian Press.

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