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Uptick in Housing Starts; but is that Good News?

According to the Canada Mortgage and Housing Corporation, there was an increase in housing starts during the month of September, but that doesn’t mean that they’re forecasting good news for the Canadian market.

Housing starts weren’t just up in September when compared with the month before, they were also approximately 10,000 more than experts and analysts had predicted they would be. The agency said that housing starts sat at 193,637 in September, a jump from the 183,964 seen in August. And well above the 185,000 that economists had forecasted for the market.

But that doesn’t have everyone singing the market’s praises, or thinking that this spells a big rebound in some of Canada’s major cities that have been experiencing some trouble in the past few years.

“The slight firming in the trend level of housing starts is consistent with the renewed strength seen in the existing home market this year,” says TD Bank economist Leslie Preston.

“However, we continue to expect that the extended period of overbuilding in the Canadian housing market is on its last legs. Putting some perspective on today’s number, the trend pace of home building is 16 per cent below last year’s peak.”

CMHC broke down those numbers even further, saying that housing starts in urban regions increased 4.3 per cent last month to a total of 177,240; and multiple unit projects rose 5.9 per cent to 113,705 units. Starts of the highly envied single-family homes in urban centres rose 1.4 per cent to 63,535 units.

Royal Bank economist David Onyett-Jeffries said that he’s not really surprised, as the pick up in resales in the last six months have indicated strength in the market.

“As we move into 2014, we anticipate that the demand for housing will moderate as affordability deteriorates against a backdrop of elevated home prices and rising interest rates and result in a moderation in new home construction,” he says.

“Our forecast calls for housing starts to drift lower over the next year and finish 2014 at 172,000 annualized units, a level that is more consistent with household formation in Canada.”

Those worried about the high number of starts in troublesome areas such as Toronto might be relieved to know that the number of starts fell in Ontario. Meanwhile, they increased in nearly all other provinces including Atlantic Canada, the Prairies, British Columbia, and Quebec.

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