Canadian housing starts fall in December, but underlying trend remains strong

Canada’s housing starts dropped in December following the sharp rise in November. Starts fell to 217k. However, the underlying trend continues to be strong with the six-month moving average at a sound 227k. Multifamily starts fell 22 percent in the month, whereas single-detached starts rose 5 percent in urban areas.

Falls in December were greatly driven by Ontario, where starts dropped 33k to a comparatively modest 66k. But starts were also lower in Alberta and PEI. On the opposite and of the spectrum, starts came in higher in the other 7 provinces. Starts in Toronto dropped 19k to 26k in the month. But the rate of new home construction in Toronto remained almost unchanged last year as compared to the prior year. Homebuilding was strong in Montreal in December, with starts rising 15k to 40k. In the meantime, starts rose higher in Vancouver, reaching 34k.

In 2017 as a whole, starts rose 11 percent from 2016, coming in at 221k. This is the highest level in more than a decade. 2017 was a strong year for multi0unit starts, with hefty gains in Quebec, Ontario, Alberta and Manitoba. Construction of single-detached units also rose in 2017, through at a weaker rate.

Homebuilding dropped in December, in line with the narrative of weaker permit issuance in recent months. However, the rate was still strong remained above the pace of household formation. Starts were solid in 2017, supported by economic strength, low interest rates and population growth, with increased construction in both single-detached and multi-unit markets.

In the fourth quarter the level of starts came in around 30 percent above its third quarter average, strengthening the expectation that residential construction would make a positive contribution to GDP growth in the quarter, noted TD Economics in a research report.

The modest drop in new home construction in December is consistent with the view that weakening economic growth, tighter lending conditions and higher mortgage rates would decelerate starts activity in 2018, stated TD Economics.

At 17:00 GMT the FxWirePro's Hourly Strength Index of Canadian Dollar was neutral 33.2224, while the FxWirePro's Hourly Strength Index of US Dollar was slightly bullish at 56.6143. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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