Blame it on the bad weather… well, at least partially.
The Canada Mortgage and Housing Corporation (CMHC) released its shockingly low March 2014 housing starts figures yesterday. While some economists pointed out that weather likely played a role in the sharp drop, they also acknowledged that the decline should be attributed to “an ongoing cooling of residential construction activity.”
That was the phrase used by BMO senior economist Robert Kavcic to describe the fundamental shift in the Canadian housing market in his analysis of the CMHC’s housing starts report.
Canadian housing starts plummeted to 156,823 annualized units in March, down from 191,126 in February. The drop in starts was accompanied by a steep decline in residential building permits for March according to separate figures released by the CMHC on Tuesday.
TD Bank economist Connor McDonald wrote that although the extent of the drop was surprising, homebuilding was due for a pullback “in light of rising inventory levels and elevated starts in recent months.”
McDonald pointed to the CMHC’s six-month moving average for housing starts, which dropped to 184,476 in March, as being closer in line with demographic fundamentals.
“Underperformance of the Canadian economy relative to the US and the likely gradual increase in interest rates through 2015 will take some of the momentum out of the demand for Canadian housing,” wrote McDonald. “We suspect that the pace of housing starts will gradually trek downward to the 165,000-175,000 unit range over the next two years.”
BMO’s Robert Kavcic noted the results weren’t entirely bleak. Housing starts continued their climb in BC and Alberta in March and the weakness was completely attributable to declines in Ontario, Quebec and Atlantic Canada.
He wrote that a set of storms in Atlantic Canada were likely to blame for the weak numbers while Quebec’s drop was due to higher than expected starts in February.
“The weather in Ontario, however, wasn’t as bad by March, but starts fell below the 40k mark for the first time since the recession — volatile condo starts in Toronto fell sharply,” Kavcic wrote.
“Volatility aside, condo starts in the city have clearly geared down, averaging just under 25k over the past twelve months, versus more than 37k in 2012 — this bigger-picture trend is not unexpected, and probably not a bad thing from a market balance perspective.”
Economist Laura Cooper didn’t exactly break with the crowd in her assessment RBC Economics on the weak March numbers, but she seemed to assign a larger part of the blame to the bad weather.
She wrote that housing starts activity is expected to retrace the recent weakness once the weather eases and that March represents “an outlier on an otherwise moderating trend.”
Looking for more Canadian housing market news? Tune into our coverage of Royal LePage’s recent house price survey results for the first quarter of 2014.