OTTAWA – Housing starts continued to cool in May as the trend measure used by Canada Mortgage & Housing Corporation (CMHC) dropped to 216,362 units in May from 225,481 units in April. Similar declines were also recorded on both a seasonally adjusted and actual basis.
The trend measure is a six-month moving average of the monthly seasonally adjusted annual rates (SAAR) of housing starts. It’s used by CMHC to complement the monthly SAAR and account for considerable swings in the estimates, which are largely driven by the multi-unit segment which can vary significantly from one month to the next.
“In May, the national trend in housing starts declined following several months of stability,” CMHC chief economist Bob Dugan said in a statement. “This reflects a decline in multi-unit urban starts in May that leaves them close to their 10-year average following several months of historically elevated levels.”
The standalone monthly SAAR of housing starts for all areas in Canada was 195,613 units in May, down from 216,775 units in April. The SAAR of urban starts decreased by 11.1% to 178,201 units. Multiple urban starts decreased by 16.4% to 119,811 units while single-detached urban starts increased by 2.0% to 58,390 units.
Rural starts were estimated at a seasonally adjusted annual rate of 17,412 units.
On an actual basis, starts of single family homes in urban areas across the country fell 3% last month to a preliminary 5,563 units, from 5,764 units in May 2017. The only bright spot was Quebec, where starts climbed 15%. They were essentially flat in Ontario and declined 18% in Atlantic Canada, 13% in the Prairies and by 8% in British Columbia.
For the five-month period ending 31 May 2018, CMHC said starts of single family homes totalled a preliminary 20,429 units – down 9% from the 22,337 units for the same period last year. They were up 16% in Atlantic Canada and 2% in Quebec but down across the rest of Canada, most notably by 13% in Ontario.
CMHC defines an urban area as one with a population of 10,000 or more.
Meanwhile, multi-unit segment starts were set at a preliminary 10,507 units in May, statistically flat with the 10,521 units for May 2017. Starts in this segment were down across the country, except Quebec where they climbed 16%.
For the year-to-date, multi-unit starts were tagged at 53,790 units – up 6% from 50,922 units for the comparable period. They were up in Quebec, Ontario and B.C. but down on the Prairies and in Atlantic Canada.
Total starts for the first five months were up 1% to 74,219 units. Upticks were recorded for Quebec, Ontario and B.C. but declines were registered in the Prairies and Atlantic Canada.
Michael Dolega of TD Economics is the report was disappointing but surprising in his research note.
“The slowdown is not overly surprising in light of a cool-off across Canada’s largest existing home markets, tighter regulation, and higher borrowing costs,” he said. “To that end, the slowdown in Ontario, experiencing a rebalancing in the existing home segment, accounted for two-thirds of the entire national decline in homebuilding.
“While the slowdown is not surprising to us, its magnitude is more pronounced that we had expected,” he continued, adding the bank now expects the overall economy’s performance in the second quarter will be weaker than previously expected although they still believe it will come in a just under 3% for the entire 2018 year.
“Going forward, given the inherent volatility, some rebound is likely to materialise in the coming months,” Dolega said, noting starts will likely fall below the 200,000 mark for the year, thanks to rising interest rates, affordability issues in both the Greater Toronto and Greater Vancouver area as well as government regulations. “The fragility of the housing market will be one of the factors that is likely to keep the Bank of Canada in the slow lane over the medium term, with just one more hike expected this year.”