Canada’s housing starts drop in August, likely to remain supported near 200k in months ahead

Canada’s housing starts dropped in August, missing the market expectations. This is the second straight monthly decline. Housing starts dropped 182,000 units annualized in August, falling 6.1 percent from July’s downwardly revised 194,000 units. The decline was widespread; however, it was mostly felt in urban center multiples that dropped 9000 or by 7.3 percent. This fall extended previous month’s drop of 15.7 percent following a red hot June tally. Single family home starts dropped by a more modest 4.2 percent in August, a second straight fall.

The fall was quite broad based throughout the nation, with starts falling about 20 percent in the Prairie Region. Housing starts in Alberta dropped 22 percent, which weighed on the region. Moreover, Atlantic Provinces also recorded a decline of 4.8 percent as softness in Nova Scotia more than countered the strength elsewhere. Ontario and British Colombia also registered drops of 10.4 percent and 4.1 percent, respectively. Meanwhile, Quebec was the exception, registered a rise of 11.6 percent after recording two monthly declines.

In spite of the monthly decline and dull headline, housing starts in Canada continued to be supported near the 200,000 mark on a trend basis. Furthermore, drops were serious in regions that saw huge gains earlier in the summer, and are unlikely to be repeated going forward, said TD Economics in a research note.

“Overall, housing starts are expected to remain supported near 200k in the coming months as strength in Ontario and recovery in hard hit regions is offset by some cooling in B.C. and still plentiful supply across most other regions”, added TD Economics.

As these themes squander, gradual rise in bond yields and anticipated changes to regulation should take certain steam out of residential construction resulting in housing starts to be more consistent with underlying demographic fundamentals of about 185,000, which might materialize by the end of 2017, noted TD Economics.