The long winter was largely blamed for the drop off in construction activity in March, making the higher-than-expected 194,800 annualized units counted in April a dramatic jump from the 156,600 recorded the month before.
Scotiabank was the only large financial institution to read the situation as a continuation of the housing explosion, suggesting wryly that “the boom, rationally or otherwise, continues.” In their report, economists Derek Holt and Dov Zigler noted that March was the outlier, “a one-off weak spot analogous to other hiccups that we’ve seen in Canadian residential construction over the past few boom years.”
The 69 per cent month-over-month rise in starts in urban Ontario seems to fly in the face of the “highly-anticipated end to the Toronto condo construction craze.”
BMO Economics took a different track. The bank focused less on the recent month-to-month volatility and more on the big picture. Robert Kavcic, Senior Economist at BMO, pointed out that housing starts in the first four months of the year averaged 179,600, “consistent with demographic demand and right in-line with where we see activity settling in for the next year or two.”
Aside from a growth spurts like the condo craze of early 2012 and some short-lived winter slowdowns, Kavcic points out that starts have largely fallen within the 175,000 to 200,000 range since the end of 2009 – “in other words, homebuilders have been, and remain, quite well behaved.”
Ultimately, they believe residential construction has been stable with levels supported by demographic demand.
RBC and TD Economics both saw April’s surge in starts as an anomaly on the road to more market moderation, as opposed to March being the outlier. The long winter in the eastern part of Canada continued to have real estate ramifications according to Josh Nye, an economist at RBC Economics. Although pent up demand and the end to the unseasonable weather may have pushed up starts last month, he writes, “we anticipate that the rebound will be relatively short lived and that housing starts will resume a gradual downward trend.”
According to their forecast, they see starts slowing to 181,000 this year, down from the 188,000 units recorded in 2013. They expect a further decline to 174,000 in 2015.
Similarly, TD suggested the “sharp rebound” in April will be short-lived. Economist Connor McDonald wrote that “elevated new home inventory levels, and a large number of projects under construction, are likely to be two important culprits that contribute to pulling down the pace in housing starts from their current level, to a pace more in line with demographically driven levels of about 170,000 -180,000.”