Housing starts for September rose to 193.6K (+5.3 percent) after a big decline to a four-month low last month of 184.0K (-6.4 percent). The increase is consistent with the pickup in resale activity and elevated building permits seen in the last few months.
The activity is healthy, beating market forecasts of 185.0K, but not worrisome, as it should not stoke fears of potential oversupply. And starts are forecast to tail off as we head toward the end of the year.
The monthly data release by Canada Mortgage and Housing Corp. (CMHC) Tuesday morning showed increased activity across all components (urban and rural single and multi-family units); however, the regional changes were not uniform in their direction.
Ontario starts fell significantly (16 percent) from August to September, while seven other provinces saw starts rise over the same period. In fact, Saskatchewan is the standout with housing starts at the highest level on record, according to BMO. British Columbia starts have been fairly stable despite the volatility of the Vancouver resale market.
According to National Bank, starts in the Greater Toronto Area (GTA) have fallen to their lowest level in five months, which is contributing to Ontario’s fall in starts.
In a report released Tuesday, National Bank cited real estate information services company RealNet: “The level of unsold new highrise condos (including presale and units under construction) was still large in August in the GTA. This suggests that promoters in that region will remain prudent before launching new projects.”
Building Permits
The value of residential permits dropped 5.4 percent, but the number of permits remained at a healthy level of 209,600, as announced by Statistics Canada on Monday.
According to BMO, the number of residential permits has been higher than 200,000 for five straight months. BMO (among others) was suggesting some upside to Tuesday’s housing starts report after the notable fall in August.
RBC’s forecast calls for “housing starts to drift lower over the next year and finish 2014 at 172K annualized units, a level that is more consistent with household formation in Canada.”
Housing starts have been gradually increasing this year with the first quarter average at 174.5K, second quarter average at 189.6K, and third quarter average now at 191.4K. The 12-month average is 189.5K.
Bank economists point to rising interest rates, elevated home prices, and lower affordability as factors that will moderate the pace of new home construction in the fourth quarter.
Canada’s housing market continues to show upward momentum, and last month’s fall in starts looks more and more like an aberration.
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