Canadian new home construction heats up in September

Consistent with the strength in the existing home market so far in 2015, new homebuilding also heated up in September. Builders broke ground on 230,701 (annualized) new units in September - the highest level of housing starts since August 2012. That brings the 6-month average to 202, 506. Note, CMHC started reporting the 6-month moving average because housing starts have become more volatile on a month-to-month basis, along with the growing importance of multi-family construction.

The bulk of the gain was largely driven by multi-family units, which rose 10.5% in September. Starts of detached homes were up a far less 0.8% in the month. Bob Dugan, CMHC's chief economist, stated that the increased activity in the multi-segment was in part driven by purpose built rentals, as well as condos.

The move to purpose-built rentals was also consistent with the regional break down during the month. Housing starts were up most strongly in the Atlantic provinces (+42%) and Quebec (+27%), where purpose-built rentals account for a greater share of the market. Starts were up 13.4% in the Prairie Region, while British Columbia also saw a healthy 7% gain in new home construction in September - with new home construction still well below the highs reached pre-2008 recession. Starts fell 4% in Ontario, following an outsized gain in August.  Housing starts in Ontario are still hovering around historically elevated levels.

"The strength in new home construction over the last six months is consistent with the acceleration in housing demand and prices. Both existing and new home sales (in some key markets) topped record high levels in first half of 2015. The increased appetite for Canadian housing will likely keep construction elevated through the rest of 2015 and first half of 2016.  However, with interest rates likely as low as they are likely to get, some of the steam in housing demand will likely fade as pent-up demand becomes exhausted. Housing construction will moderate along with overall housing market activity",says TD Economics.

In addition, CMHC's data release this morning came with a word of warning. The chief economist, Bob Dugan, also noted that "trend activity is now above the projected annual pace of around 190,000 new households. This underscores the continuing need for inventory management to minimize the number of completed but unsold units."  The increase in housing construction is of particular concern in the Prairie Region where housing market conditions have softened considerably so far over 2015, but the number of new units under construction was already at record levels. Ontario has also seen a spike in the number of newly completed but unabsorbed units over the first half of 2015, and new building will only add to the rising inventory of new homes.

"The Demand in Ontario remains healthy and the market for condos is still fairly balanced - for now.  Note that in contrast, B.C. has some catch-up to do following a trend decline in housing construction since 2008, especially following what has been a record year of home sales", added TD Economics.