February 18, 2010
Economy at a Glance
Canadian housing starts recover nicely in January 2010
January 2010 was the second-highest level of national housing starts in the past four months, with 186,300 units seasonally-adjusted and annualized, according to Canada Mortgage and Housing Corp. (CMHC).
The upwardly revised October 2009 figure of 188,000 units was a little stronger. Prior to that, however, one has to go back to October 2008 (209,000 units) to find a more elevated level of starts.
The latest 186,000 figure is a remarkably strong recovery from some of the low monthly numbers that were recorded last year. For example, in April 2009, annualized national housing starts were only 112,000 units.
The official estimate for 2009 as a whole was 149,081 units. That was -29.4% versus 2008’s level of 211,056 units. For the seven years 2002 to 2008 inclusive, the annual average was 222,000 units.
An unusually quick bounce-back
It is unusual for housing starts to bounce back so quickly once the cycle turns negative. The difference this time around has been the strength in the existing home resale market and the record-low interest rates.
Residential real estate is one of the most interest-rate sensitive sectors of the economy. And home resales are a leading indicator for new starts. Many people sell existing homes with the idea of moving up to something bigger and newer, or with the idea of moving into a condo in a downtown core.
Unsold inventory levels
With regard to the condo market, the inventory of unsold multi-unit residences increased slightly in the latest month. They now stand +137% above their “normal” long-term position (i.e. more than double what they should be).
The level has evened out on a high plane for the past six months. The number of multiples under construction has been adjusted downward significantly (-19.2% year over year), which is a step in the right direction.
But seasonally adjusted multi-unit starts increased again in the latest month, an indication that developers believe that there are still good sales opportunities in the marketplace.
The unsold inventory of singles and semis is just about where it should be (only +11%) on a historical tracking basis. An important side-effect of the hot residential market has been that real estate agent and brokerage fees have been making a significant contribution to the nation’s gross domestic product.
It is too early to make particularly meaningful year-over-year comparisons. Still, it is interesting to note that there was a year-over-year increase in housing starts in the latest month in every province of Canada except Nova Scotia (0%) and Newfoundland (-15%).
Saskatchewan and Manitoba had the largest percentage gains. They are also the two provinces with the lowest unemployment rates in the country: Saskatchewan at 4.7% and Manitoba at 5.4%.
On a month-to-month basis, it was British Columbia (+19.8%) that made the largest percentage gain in starts in January 2010 versus December 2009.
The outlook
Conventional wisdom is that housing starts will stay reasonably strong until interest rates begin their adjustment upward under the direction of the Bank of Canada, somewhere around this year’s mid-point.
It is worth noting, however, that often in the past, when potential homeowners see interest rates moving higher, they jump into the market in greater numbers to lock in deals before they become more expensive.
For more articles by Alex Carrick on the Canadian and U.S. economies, please see his market insights. Mr. Carrick also has an economics blog. His personal blog is at www.alexcarrick.com
Data source: CMHC | Chart: Reed Construction Data - CanaData
Data source: CMHC | Chart: Reed Construction Data - CanaData
