Canadian housing starts fell 4.3 percent in July to miss estimates while new home prices rose at a slower pace than in the prior month, suggesting a steady cooling of the domestic housing market.

July housing starts dropped to a seasonally adjusted annualized rate of 215,600 units from a downwardly revised 225,300 units in June, Canada Mortgage and Housing Corp. said on Thursday.

That fell short of analyst expectations for 220,000 units.

Data from Statistics Canada also showed the price of new houses rose more moderately in June, though demand was brisk in the Prairie provinces.

The Canadian housing market is cooling, but at a steady pace, unlike its U.S. counterpart, Jennifer Lee, an economist at BMO Capital Markets wrote in a note. Today's pair of housing indicators can attest to that.

But Lee said the domestic market remains in strong shape as the level of housing starts continues to hover within the 200,000-250,000 range it has occupied for the last four and a half years.

Urban single-family starts fell 2.7 percent to 89,700 units, while urban multiples -- condominiums and apartments -- dropped 8.4 percent to an annual rate of 92,100 units.

Rural starts in July were estimated at an annual rate of 33,800 units, up from 32,600 in June.

The lower level of housing starts this month is consistent with our forecast of a gradual easing in the pace of new home construction in 2007 caused by rising prices and slightly higher mortgage rates, CMHC's chief economist, Bob Dugan, said in a statement.

The Canadian dollar dropped to C$1.0641 to the U.S. dollar, or 93.98 U.S. cents, following the report from pre-data levels around C$1.0572, or 94.59 U.S. cents. It has since recovered all of the post-data losses.

HOUSING PRICES

The annual increase in new housing prices slowed for the eighth straight month, easing to 7.8 percent in June from 8.6 percent in May, while the month-on-month increase fell to 0.7 percent in June from 1.1 percent in May.

The Bank of Canada watches housing prices as indicator of whether the economy is overheating.

All said, the general cooling in home price appreciation is welcome news on the inflation front, as home prices have been largely responsible for the core inflation rate remaining above the Bank of Canada's target rate of 2 percent for almost a year now, Pascal Gauthier, an economist at TD Economics, said in a note.

The biggest increases in recent years have been in the main oil province of Alberta, but annual increases there have retreated to 14.7 percent in Calgary and 31.9 percent in Edmonton (down from a high of 42.8 percent in November).

However, spillover into less-populous Saskatchewan and Manitoba has enlivened property markets there.

In Saskatchewan, Saskatoon's new housing prices set a record annual increase of 48.4 percent -- prices jumped 8.8 percent in just one month -- and Regina's annual increase was a record 22.5 percent.

Inflation Canada