September 23, 2009
Economy at a Glance — September 24, 2009
Canada’s housing starts in August get caught in an updraft
ALEX CARRICK
Chief Economist, CanaData
In August versus July (134,000 units) and earlier this year, Canada’s seasonally adjusted housing starts exhibited an upward shift to 150,000 units annualized. They were as low as 119,000 units annualized in April. Several factors are contributing to the improvement.
(1) Public officials have been saying that the end of the recession is at hand. Third-quarter GDP is expected to increase for the first time after declining since last fall. This contributes to better home-buying confidence.
(2) With a national unemployment rate of 8.7%, the jobs market has deteriorated, no doubt about it, but not to the degree that at one time was feared. And to nothing like the same degree as south of the border, where nearly 7 million jobs have disappeared.
(3) Affordability has improved. This has been a function of some price moderation and historically low mortgage rates. Initial carrying costs are quite low for individuals and families with good credit ratings.
(4) The introduction of the HST (harmonized sales tax) in Ontario in July of next year is an incentive to take action now, since it will add to the cost of a new home once it is in place. There will be rebates to lower that cost, but it is still on the minds of many purchasers.
(5) The existing homes resale market has taken off since the spring. This is often a precursor to stronger new home demand.
There is still an overhang of unsold inventory in the new homes market, however. This is far truer of multi-unit residences as opposed to singles and doubles. The inventory of singles is adjusting downward. It now stands too high by only about 50%. But the unsold inventory of multiples continues to shoot skyward. It is too excessive by a factor of nearly one-and-a-half times.
Year-to-date multi-unit starts in Toronto continue to lead the country at 11,285, although this is -43% versus the same January to August period of last year. Montréal is in second place with 8,552 units started. Furthermore, this figure is only -16% versus last year. Vancouver has dropped back to a distant third with only 3,335 multi-unit starts to date, which is -70% when compared with the first eight months of last year.
British Columbia continues (-6.5%) to be the province with the sharpest drop in overall housing starts this year versus last year. Manitoba’s housing market (-28%) is the steadiest in the West, because it never did experience the excesses of Saskatchewan, Alberta and B.C. in the boom times. The Atlantic Provinces and Québec are all performing relatively better than Ontario in the East.
For more articles by Alex Carrick on the Canadian and U.S. economies, please see his market insights. Mr. Carrick also has a blog site. His lifestyle blog entries are at www.alexcarrick.com
(seasonally adjusted at annual rates)
Data source: Canada Mortgage and Housing Corp. (CMHC).
Chart: Reed Construction Data – CanaData.
