January 30, 2013

Canada’s 2012 New Home Starts were Dominated by the Multiples Market

ALEX CARRICK

Chief Economist, CanaData

Canadian housing starts in December at 198,000 units seasonally adjusted and annualized (SAAR) were the lowest of any month in 2012, according to Canada Mortgage and Housing Corporation (CMHC).

That statement, however, exaggerates the weakness. November’s starts were originally reported as slightly below 200,000 as well, but they’ve been revised up to 201,000 units in the latest report. Plus there were several other months in 2012 – at the beginning of the year – when starts were just slightly above 200,000.

The year’s best month was April at a stunningly high 253,000 units SAAR.

Throughout 2012, the monthly average of housing starts in Canada was 215,100 units. That was an increase of 11.3% versus 2011’s 193,200 units.

All of 2012’s increase came in the multiples market, +18%. New single-detached home starts were flat (0.0%).

The highest profile portion of the multiples market at this time is condominium construction. Toronto residents, for example, continue to be astounded by the number of construction cranes building high-rise residences all over the city.

The three biggest population centres in the country – Toronto, Montreal and Vancouver – accounted for 40% of total national housing starts in 2012. More significantly, their share of the multiples market was a much higher 60%.

By far the dominant market for multiples nation-wide is Toronto. In 2012, Toronto’s multi-unit starts at 37,406 units exceeded Montreal (16,632) and Vancouver (15,646) added together.

For all of 2012, Toronto’s multi-unit starts were +31.3% compared with 2011. On the same basis, Vancouver was +10.3% and Montreal, -7.9%.

In the individual month of December 2012, Toronto multi-unit starts were +40.6% versus November 2012 and +43.6% when compared with December 2011.

The comparable percentage changes for Vancouver were -8.2% and +5.6%. Montreal’s numbers were much weaker, -30.5% and -28.0% respectively.

Several other cities deserve special mention for their multiples strength last year. Edmonton’s multi-unit starts at 7,179 units slightly exceeded Calgary with 6,880 units. Edmonton’s percentage increase for all of 2012 versus the twelve months of 2011 was +66% while Calgary turned in a +63% performance.

As for total unit starts in both cities, the full-year 2012 over full-year 2011 percentage increases were exactly the same at +38%.

Ottawa (6,505 units) and Quebec City (5,158) also stood out with sizable multi-unit markets last year. The former recorded a 23% full-year 2012 over full-year 2011 increase, while the latter’s gain was +26%.

Most analysts expect that 2013 will bring a moderation in overall home stars in the country. Pent-up demand has been largely satisfied and Ottawa has introduced several measures to tighten the mortgage approvals process.

The inventory of completed but unsold multi-unit properties now stands about 60% higher than prior to the recession. Unsold singles have recently edged up to a level about 10% higher than they should be, based on the historical pattern.

Annual family formations and immigration establish a warranted level of starts of about 180,000 units per year. The worry is that when groundbreakings rise above that figure for a sustained period of time – as they did in 2012 – they may swing too far in the other direction when they turn down.

Two factors help to allay that fear at this time. Canada has been experiencing extraordinary employment gains of late, with 300,000 net new full-time jobs created last year. A good year is +200,000 to +250,000 net new workplace positions. More jobs and better incomes help to support residential real estate. 

And the monetary environment remains highly accommodative, with mortgage rates near record lows.

Statistics Canada’s New Housing Price Index (NHPI) is continuing to climb. In November 2012, the NHPI advanced 0.1% month to month and +2.2% year over year.

The “house only” component was +0.1% month over month and +2.4% year over year. The cost of land was flat month over month and +1.5% year over year.

The highest year-over-year price increases among the nation’s largest cities were recorded in Toronto and Winnipeg, both +4.1%.

Four urban centres registered new home price declines, but only one of them – Victoria (-2.9%) – recorded a drop that was greater than -1.0%. Vancouver’s new home prices were -0.4%.

Canada monthly housing starts
(seasonally adjusted at annual rates)

Canada monthly housing starts

Jan-Dec average 2011 = 193,200 units;
Jan-Dec average 2012 = 215,100 units (+11.3%).
Canada’s Annual Starts:
2007 = 228,343 units (+0.4%);
2008 = 211,056 units (-7.6%);
2009 = 149,081 units (-29.4%);
2010 = 189,930 units (+27.4%);
2011 = 193,950 units (+2.1%).
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 60%; in the singles market, the unsold inventory is about 10% above what 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-Dec 2012 vs Jan-Dec 2011)

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-Dec 2012 vs Jan-Dec 2011)

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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