Starts steady in November
OTTAWA – The trend measure of housing starts remained essentially unchanged at 199,135 units in November, according to the Canada Mortgage & Housing Corporation (CMHC). However, thanks to slides in the multi-unit segment, when measured actually or on a seasonally adjusted basis, housing starts actually fell last month.
The trend is a six-month moving average of the monthly seasonally adjusted annual rates (SAAR) of housing starts and is used by CMHC to account for considerable swings in monthly estimates and obtain a more complete picture of the state of Canada’s housing market. Analysing only SAAR data can be misleading, as its driven by the multi-unit segment of the market which can vary significantly from one month to the next.
"Housing starts kept a steady pace in November as upward trends observed in British Columbia and the Prairies offset downward trends recorded in Ontario, Quebec and the Atlantic provinces,” CMHC chief economist Bob Dugan said in a statement. “We’re also seeing that housing starts are on track to have moderated in 2016 compared to 2015 in most centres where we detected overbuilding.”
The standalone monthly SAAR for all areas in Canada was 183,989 units in November, down from 192,297 units in October. The SAAR of urban starts decreased by 5.0% in November to 166,828 units. Multiple urban starts decreased by 7.7% to 105,915 units in November, while single-detached urban starts held steady at 60,913 units.
In November, the seasonally adjusted annual rate of urban starts decreased in Ontario, Quebec and in Atlantic Canada, but increased in British Columbia and in the Prairies.
Rural starts were estimated at a seasonally adjusted annual rate of 17,161 units.
However, actual starts totalled 16,470 units in November, a 13.5% decline from the 19,050 units started in November 2015. For the 11 months from January to November, CMHC reported a total of 164,705 starts, down 2.1% from the 168,316 units for the same period of 2015.
Single-family home starts in urban areas – which CMHC defines as an urban area with a population greater than 10,000 – were set at a preliminary 5,630 unit for November, 5.3% higher than the 5,346 units begun in November 2015.
For the year-to-date, single starts totalled 55,127 units – a gain of 3.6% over the 53,222 units started in the comparable period.
The big decline was registered in the multi-unit segment, which includes dwellings such as apartments and townhouses (for both the condominium and rent markets). Starts were estimated at 9,305 units which is a 23.8% decline from the 12,206 units started in November 2015.
Starts from the January to November period totalled 109,578 for the multi-unit segment – down 4.8% from the 115,094 for the same period last year.
In her note to clients, Diana Petramala of TD Economics pointed out that despite the downturn in actual starts, CMHC’s trend measure remains roughly consistent with household formation in this country and is reflective of the underlying health of the new home market, which “is being supported by a wave of millennials exiting their parents' homes and by record levels of immigration.”
However, she expects the combination of soft employment gains, tighter mortgage insurance rules and rising interest rates to bit into demand as the New Year begins. “Overall, we expect starts to edge down to 180,000 (annually) by the end of 2017 and 175,000 (annually) by the end of 2018,” she said.
She also noted the diverging trends between the new home market and the existing home market in British Columbia and Ontario.
“In B.C., starts continue to top record levels despite the correction underway in the existing home market,” she noted. “This likely reflects a combination of the lags between housing demand and new home construction and the shift in demand preferences from the existing home market to the new home market for first time homebuyers.”
That short is being driven by the B.C. government’s decision to exempt first time homebuyers from the land transfer tax on new builds priced under $750,000. “It is estimated that over 10,000 households have already taken advantage of this tax saving,” Petramala said.
“The opposite is true in Ontario where new home construction has not picked up along with the strength in the existing home market,” she continued. “While sharply rising home prices, increasing mortgage rates and changes in mortgage regulation will continue to cut into affordability, a lagged supply response in Ontario should limit the downside to home prices as housing demand slows in the coming years.”