June 23, 2011

Canada’s total housing starts rose slightly in May

Chief Economist, CanaData

Total housing starts in Canada in May rose 2.8% month over month to stand at 183,600 units, seasonally adjusted and annualized, according to Canada Mortgage and Housing Corporation (CMHC). However, that left them down 7.1% when compared with May of last year.

Through the first five months of this year, residential ground-breakings have averaged about 10% less than during the same January to May period in 2010. This is consistent with an existing homes resale market that has shown a similar degree of fatigue lately.

Several factors have contributed to less robust demand this year. Tighter mortgage approval rules have been introduced by Ottawa. And the Bank of Canada has been warning about the dangers of buying “too much house”. Higher interest rates are sure to come and this will put a strain on family balance sheets as mortgage payments climb on renewals.

Currently, the inventory of unsold new homes is only a problem in the multiples market. The number of unsold singles has returned to par with its long-term historical pattern and appears about right. However, the inventory of unsold multiples is too high by 80% even though it has been coming down for the last three months.

It’s interesting to speculate about a “new norm” for demand in the multiples market. While many “new norms” in other areas of the economy have eventually turned out to be illusions (i.e., that outrageous price-earnings ratios are okay for dot.com companies), there are two trends to suggest the multiples market may be undergoing a makeover.

First is a societal shift as an older generation increasingly moves out of low-rise lodgings scattered throughout cities and in suburbs and moves into high-rise cores. There is a great deal of appeal to downtown living for those who want easier access to stores, restaurants and entertainment. Plus many seniors figure it’s time to ease back on both home maintenance and property care. Let a management company do the job.

Second is the arrival in Canada of a remarkable wave of investor-class immigrants. Many of these individuals are coming from new affluent classes in mainland China, as well as from South Korea, Taiwan and the other Asian Tigers. Another common source is the Middle East.

Good schooling and well-established ex-patriot communities are drawing cards on top of the financial and political stability to be found in Canada.

The national multiples market is established mainly by three cities – Toronto, Vancouver and Montreal. May’s year-to-date multiple unit starts in Montreal were almost exactly even (+0.3%) with where they were last year. In May 2011 alone, they were +11.4% versus April 2011 and +19.1% versus May 2010.

Toronto multiples in the most recent May were -27.8% compared with April and -2.9% versus May of last year. Those declines still left them +54.3% on a year-to-date basis versus the first five months of 2011.

Similar to Toronto, Vancouver multi-unit starts were +57.6% year to date in May. But the individual month of May was particularly strong, +67.7% versus April and +121.6% versus May last year.

In terms of total unit starts so far this year, Toronto (+30%) and Vancouver (+27%) have been the leaders among the six largest cities in the nation according to population. The gains in both cities have come entirely due to multiples strength, as the single-family market has been in decline (-14% year to date in Toronto and -33% in Vancouver.)

Montreal’s -8% performance in total starts has resulted from a 27% decline year to date in singles while multiples have stayed flat.

In Statistics Canada’s April employment figures, Alberta recorded a 2.9% year-over-year gain in jobs versus the Canada-wide increase of 1.7%. With world oil prices at US$100 per barrel, the province’s economy is thawing from a long winter chill of mega project cancellations and postponements.

However, the improving economic outlook isn’t showing up in housing starts just yet. Through May, Edmonton’s total year-to-date starts were -25%, with singles at -30% and multis at -25%. Calgary’s record was even weaker, with a 29% overall decline due to singles at -32% and multis at -19%.

The province that has stood out for strong housing starts so far this year has been Saskatchewan (+34% year to date). Both Regina (+40%) and Saskatoon (+51%) have recorded significant increases in their year-to-date starts. Apparently it’s not just hype when attention is drawn to the abundance of natural resources in Saskatchewan and what that means for employment prospects and income growth.

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 lifestyle blog is at www.alexcarrick.com

Canada monthly housing starts
(seasonally adjusted at annual rates)

Canada monthly housing starts

Jan-May average 2010 = 199,200 units;
Jan-May average 2011 = 179,600 units (-9.8%).
Canada’s Annual Starts:
2006 = 227,395 units (+0.8%);
2007 = 228,343 units (+0.4%);
2008 = 211,056 units (-7.6%);
2009 = 149,081 units (-29.4%);
2010 = 189,930 units (+27.4%).
Data Source: Canada Mortgage and Housing Corporation (CMHC)/Chart: Reed Construction Data - CanaData.
Inventory of completed but unoccupied dwelling units:
centres in Canada with populations of 50,000 or more

Inventory of completed but unoccupied dwelling units: centres in Canada with populations of 50,000 or more

The unsold inventory of multiples is too high by 80%; the unsold inventory of singles is about where it should be.
Data Source: Canada Mortgage and Housing Corporation (CMHC)/Chart: Reed Construction Data - CanaData.
Per cent change in year-to-date housing starts - ranking of Canada's provinces
(Jan-May 2011 vs Jan-May 2010)

Per cent change in year-to-date housing starts - ranking of Canada's provinces

Data Source: Canada Mortgage and Housing Corporation (CMHC) (based on actuals rather than seasonally adjusted data.
Chart: Reed Construction Data - CanaData.
Per cent change in year-to-date housing starts – ranking of Canada’s major cities
(Jan-May 2011 vs Jan-May 2010)

Per cent change in year-to-date housing starts – ranking of Canada’s major cities

*Canada's Census Metropolitan Areas (CMAs) have core populations of 50,000 plus.
The six CMAs in capital letters are the largest cities in Canada by population.
Data Source: Canada Mortgage and Housing Corporation (CMHC)(based on actuals rather than seasonally adjusted data.)
Chart: Reed Construction Data - CanaData.

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