Canada’s housing starts remain firm in November, likely to decline slightly by end-2017

Canada’s housing starts remained firm in November amidst ongoing volatility in existing home market. In the month, builders broke ground on 184,000 new housing units, a tad lower than the 192,000 that began a month earlier. Still, the six-month moving average in Canada’s housing starts remained stable at around 199k.

The monthly decline in starts was due to a 7.7 percent drop in multiple starts that tend to be volatile. Single-starts remained stable at 61,000, a level they have been lingering around since 2014. Region wise, there was a clear east-west divide. In Ontario, the Atlantic region and Quebec, starts declined by 31.9 percent 10.1 percent and 4.2 percent, respectively. However, starts rose in the Prairies and British Colombia, which recorded a rise of 1.6 percent and 72.7 percent.

On a month-to-month basis, starts are volatile, while the six-month moving average reflects the underlying health of the new home market. Almost 200,000 units are roughly in line with consumer formation. Household growth is being underpinned by a wave of millennials exiting their parents’ homes and by record levels of immigration, noted TD Economics.

However, the combination of weak employment gains, increasing mortgage interest rates and tighter mortgage insurance are expected to bite into that demand in the New Year. In all, housing starts are expected to decline slightly to 180,000 by the end of 2017 and 175,000 by the end of 2018.

The interesting point in the housing starts data was the evident diverging trends between the new home market and the existing home market in British Columbia and Ontario. Housing starts in British Columbia continue to top record levels in spite of the correction underway in the existing home market. This possibly shows a combination of the lags between housing demand and new home construction and the shift in demand preferences from the existing home market to the new home market for first time homebuyers.

“While sharply rising home prices, increasing mortgage rates and changes in mortgage regulation will continue to cut into affordability, a lagged supply response in Ontario should limit the downside to home prices as housing demand slows in the coming years”, added TD Economics.