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Canadian housing starts rose to 198,324 annualized units in May, a seven-month high and up from an already much better than expected 196,687 in April.
In the report, published yesterday by the Canada Mortgage and Housing Corporation (CMHC), the rise in starts was attributed to a spike in single-family home construction while multi-units held steady.
Economists from Canada’s big banks were on the same page, for the most part, chalked up the surprisingly large rises in April and May to the weather-related volatility experienced in the earlier months of the year.
TD economist Diana Petramala called volatility “the new normal” in a reaction note published yesterday.
“Multi-unit construction, which tends to be highly volatile, has risen as a share of overall new home construction,” she wrote. With that in mind, the six month moving average is a superior indicator of the pace of new home construction. Housing starts were trending at 184,438 units in May, compared to 183,872 in April and, despite the small increase, Petramala wrote that this points to a deceleration since the trend peaked in September 2012.
“Looking past this near-term volatility, housing starts are expected to continue to trend down to 170,000 to 175,000 units, a pace that is more in line with household formation, as the housing market works through the elevated number of condos for sale,” she wrote.
Over at BMO, Robert Kavcic called housing starts “a tad warm” but not “way out of line with demographic demand.”
“Importantly, homebuilding has not broken meaningfully above the 200k mark,” he wrote. “Recall that during the first six months of 2012, before Ottawa
tightened mortgage rules for the fourth time (July of that year), housing starts averaged around 220k annualized units, and we’re not sniffing those levels yet.”
Kavcic described current levels of starts as being “within the range supported by fundamentals” but a “significant and sustained upward move from here could turn policymakers’ heads.”
RBC’s Laura Cooper described Canadian homebuilding activity as “rebounding smartly” in the second quarter following the harsh winter.
“[H]owever, with the weather-related volatility having likely now run its course, we anticipate that the pace of new home construction will cool once again during the second half of 2014 to levels similar to the average of the first half of the year,” she wrote.
Need more Canadian real estate market news? See how many Canadian building permits were issued in April via the new Statistics Canada report and find out at what age the average Canadian expects to be living debt free.