Canada’s housing sector got another boost with housing starts rising surprisingly for October to 198.3K annualized units (up 1.2 percent from September), according to Canada Mortgage and Housing Corp. on Nov. 8. Market expectations hovered around a figure of 190.8K.
The rise stems from a 13 percent rise in rural units (to 21K) and a modest 0.9 percent rise in urban multi-unit starts (to 115K). Urban single homes fell 1.7 percent. By region, the increases came from the major cities in Ontario and Alberta.
With the Bank of Canada removing its tightening bias last month, the environment is becoming more favourable for expansion in the housing sector. Also, bond yields have tempered their rise following the U.S. Federal Open Market Committee to not reduce their rate of bond purchases in mid-September.
And in terms of further mortgage policy tightening from the government, Bank of Montreal notes, “Before the fourth round of mortgage rule tightening was announced in June (and implemented in July) [of 2012], housing starts had flared as high as high as 253K units and averaged just over 230K units for all of 2012Q2.”
The building activity is lower now than it was last year, but some of the big banks’ economics departments suggest that the trend in housing starts is higher than demographic fundamentals. The six-month trend has moved higher from 191K to 195K, according to Toronto Dominion Securities.
“Our forecast calls for housing starts to drift lower over the next year and finish 2014 at 174K annualized units, a level that is more consistent with household formation in Canada,” according to a report from the Royal Bank of Canada.
RBC believes the increasing home prices and affordability pressures will force a slowdown in housing starts.
But until that takes place, it’s more gentle upward momentum for Canada’s housing market.