Housing Starts in Canada Feeling Winter’s Chill

Alberta remains resilient for the time being
March 11, 2015 Updated: March 11, 2015

Homebuilding in Canada took a sharp turn lower in February as housing starts fell 16.4 percent month-over-month, according to Canada Mortgage and Housing Corp. (CMHC) on Monday, March 9. The drop exceeded forecasts by bank analysts.

The trend in housing starts, a six-month moving average of monthly figures, decreased for the fifth straight month.

Overall, housing starts fell to 156,276 annualized units in February, down from a revised figure of 187,025 in January. The tumble mainly came from multiple-unit starts (down 25.1 percent) as opposed to single-detached homes (down 4.1 percent). Multiple-unit starts dropped to their lowest level since January 2011, according to National Bank.

Regionally, most of the fall came in Ontario (down about 16.1K), while Alberta fell only about 0.4K. For Atlantic Canada and Quebec, the level of starts fell to their lowest level since February 1998 and December 2001 respectively, based on analysis from National Bank.

If the resale market is any guide, a meaningful slowdown in new construction will hit the province [Alberta] any month now.

“The declining trend in multiple starts is helping to gradually erode the inventory of completed and unsold units, which is high compared to historical levels,” said CMHC chief economist Bob Dugan in a press release.

Condo construction in Toronto got out of line with demographic demand in 2012, but the excess inventory is being whittled away.

RBC’s report on housing affordability in the fourth quarter of 2014, published on March 3, showed deteriorating affordability for all types of homes in Toronto, though condos showed the least amount of deterioration in affordability.

As one might expect with such a big drop, the impact was broad-based across the country (eight of 10 provinces). But while the biggest shock to the Canadian economy—the drop in oil prices—has taken the steam out of home sales in Alberta, housing starts along with home prices have not followed suit yet.

Bank analysts feel the record-breaking frigid February in Ontario and the Maritime provinces likely played a role in the decreased starts. Conversely, the mild winter in Alberta may have helped cushion the fall in that province.

But BMO, in a research note, sounded a warning for Alberta as the slide in oil prices has yet to take effect on new home construction.

“If the resale market is any guide, a meaningful slowdown in new construction will hit the province any month now,” said BMO.

National Bank expects about 175K housing starts for 2015 (189.3K in 2014), but points out in a research note, “starts are set to be a drag on economic growth in Q1 for a second quarter in a row.”

The housing market is definitely facing some trying months ahead. It has received a bit of a boost from the Bank of Canada rate cut on Jan. 21, but it looks like the central bank feels it has done its job for now and it’s up to the housing market to sort itself out.

“The bigger picture is that homebuilding activity on a national basis is consistent with demographic demand,” states BMO.

The housing starts drop in February looks to be an outlier influenced by the weather, but the trend in lower starts is clear, though not problematic from a supply and demand perspective.

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