Photo: Oscar Rethwill/Flickr
Despite last week’s reading that the value of residential building permits was up, housing starts in Canada defied economists’ expectations for October and came in much lower than forecasted.
Canada Mortgage and Housing Corp. said Monday that the seasonally adjusted annual rate (SAAR) of housing starts was 183,604 units in October. The consensus forecast among economists called for 200,000 housing starts, which would have been up from 197,763 units in September.
The six-month moving trend of the number of new homes on which building began during the month of October equated to 195,707 housing starts on an annualized basis, a more modest drop from the previous month. (CMHC uses the trend, a moving average of the SAAR, to account for swings in monthly estimates and get a more complete picture of the state of the housing market.)
October’s soft showing comes as a disappointment to many economists who had been expecting starts to pick up, in line with the strong showing of residential building permits in September.
“The decrease in the trend reflects a decline, in October, of starts of multi-unit dwellings, including condominiums,” CMHC’s chief economist Bob Dugan said in a press release. “Given the elevated level of condominium units under construction, our expectation is that condominium starts will continue to trend lower over the coming months.”
The decline in urban housing starts was widespread across the country in October, with British Columbia (down 15 per cent month-over-month) and Quebec (down 8 per cent) leading declines, followed by Atlantic Canada, the Prairies and Ontario.
TD economist Brian DePratto pointed out in a research note that “the decline was led entirely by multiple-unit starts, which can be quite volatile. With multi-unit construction growing as a share of overall new homebuilding (it now accounts for 60 per cent of construction), monthly swings have become more volatile, and so longer-term trends provide a more appropriate gauge of the health of Canada’s construction industry,” he said. (Multiple starts refer to buildings with multiple units, such as condos, rather than detached homes.)
DePratto added that despite this morning’s report, “the trend pace in housing construction over the last six months has still outperformed our expectations and has remained well above the 180,000 level needed to keep up with underlying population growth.”
Bank of Montreal economist Robert Kavcic also said in a research note that although starts came in below expectations, the result will “allow policy makers to rest assured that homebuilding activity is roughly meeting demographic demand.”
He concluded that “while recent home prices trends are starting to raise some eyebrows, there’s little concern about overbuilding in Canada with housing starts trending near fundamental requirements.”
CIBC economist Nick Exarhos said the construction sector will still add to GDP over the near- to medium-term with the recent pace in building intentions and starts.
“All told a slightly weaker reading than expected, but markets don’t react particularly strongly to starts data, and any potential negative spill-over onto the loonie will likely be mitigated by stronger energy prices in today’s trading,” he said.
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