Canadian housing starts stayed stronger than expected in June. Economists say this practically guarantees that the Bank of Canada will increase interest rates next week.

“Defying expectations and perhaps gravity, the seasonally adjusted annual rate of housing starts in Canada experienced little change in June, finishing at 202,100 units from 203,300 units in May and 4% higher than the market’s estimate of 195,000 units,” says RBC Financial. “This is the fourth time in six months that housing starts have approached the 200,000-units mark, a feat that has not been matched since early 1990.”

Urban single starts dropped by 4.4% to an annual rate of 102,500 units from 107,200 in May. But urban multiple starts increased by 5% to an annual rate of 73,700 units. “Although recent residential building permits data suggest that the more volatile multiple sector may be due for a correction in the ensuing months, the 36.7% year-to-date increase in single detached starts points to the real vigour of the housing market,” says RBC.

“Today’s results provided another dose of evidence that the potent combination of low borrowing costs, strong job creation, and low inventories of new homes continue to power Canada’s homebuilding machine to impressive heights from coast to coast.” says TD Bank. Although it sees “preliminary signs emerging that the housing market may have started to simmer down as mid-year rolled around. Most importantly, after beginning the year on a tear, Canadian resale activity has declined in three in the past four months, suggesting that rising interest rates are beginning to take a bite out of housing demand.” TD also sees rates heading higher.

“The Canadian economy continues to relentlessly churn out better-than-expected data, led especially by housing. Starts have simply blown away expectations this year and have returned to levels not seen since the boom of the late 1980s,” marvels BMO Nesbitt Burns. But it is not sure that existing rate hikes have had much of a cooling effect. “While this may be great news for those associated with the industry, the hot market conditions are also acting like a red flag for the Bank of Canada. The modest hikes in interest rates to date — overnight rates are, after all, only up 25 basis points since the start of the year — will do little to cool the raging inferno known as the housing sector,” it says.

RBC says that as there are no other major Canadian releases between now and the Bank of Canada’s rate announcement on July 16. Bank of Montreal says that the continued strong momentum in the housing sector adds to the weight of evidence pointing to another 25 bps rate hike at the next rate announcement.