Canadian new home construction slows slightly in July

Housing starts were down slightly in July, at approximately 193K units (annualized) in July, following 202K units in June. On a trend (6 month moving average) basis, starts were up for a third straight month, reaching 185.6K (June: 184K). Much of the decline was the result of falling starts in urban centres, where activity fell by 11K units to reach 177K (a nearly 6% decline). Reduced activity was seen in Toronto (-23%), Regina (-37%), and Calgary (-54%) following strong gains in June. As has been the case for some time now, most of the movement in starts has been the result of the volatile multiple unit construction segment, where activity was down 11K units (-8%). Single family home construction was roughly unchanged in July.

Canadian housing construction activity remained relatively strong in July, continuing to rise on a trend basis, and remaining somewhat above their long-term sustainable range of 170K to 180K units. That said, beneath the headline, a number of different stories continue to play out across Canadian housing markets. 

Several markets, such as Vancouver, have experienced a prolonged period of relatively modest construction activity, resulting in underserved demand and strong price gains, which should result in increased starts as developers work to meet this demand. In contrast, Toronto (particularly for multiple unit dwellings) and Montreal have been amply supplied to date, despite strong sales activity year to date.

Overall, the combination of low interest rates and strong demand should provide a strong incentive to developers to continue supplying the housing market with new stock. However, the regional story is likely to persist, as the construction recovery appears to be lagging in well supplied markets (such as Toronto and Montreal). However, with existing home sales surging, much of the excesses are being absorbed, and a revival in new home construction is expected through the second half of this year.