Housing starts down in January

OTTAWA – Housing starts fell for the second consecutive month in January, according to Canada Mortgage & Housing Corporation (CMHC). Starts fell not only on an actual and seasonally adjusted basis, but according to the agency’s trend measure as well.

CMHC reported the trend measure of housing starts in Canada was 199,169 units in January, compared to 203,304 in December.

The trend is a six-month moving average of the monthly seasonally adjusted annual rates (SAAR) of housing starts. It is used to complement the SAAR and account for the swings in the monthly estimates – generally driven by the multiple unit segment of the market – which have been known to swing wildly from one month to the next.

“Housing starts trended down across the country with the exception of Ontario,” CMHC chief economist Bob Dugan said. “The overall decline is mostly attributable to a slowdown in the Prairies where the housing starts trend was at a four-year low in January. The slowdown in new housing activity coincides with an unemployment rate that is at a five-year high in Alberta.”

The standalone monthly SAAR was 165,861 units in January, down from 172,533 units in December. The SAAR of urban starts decreased by 3.0% in January to 153,701 units. Multiple urban starts decreased by 5.3% to 95,406 units in January and the single-detached urban starts increased by 1.0% to 58,295 units.

In January, the seasonally adjusted annual rate of urban starts decreased in Québec, the Prairies and British Columbia, but increased in Ontario and Atlantic Canada.

Rural starts were estimated at a seasonally adjusted annual rate of 12,160 units.

Actual starts for the month of January 2016 totaled 10,187 units, down 16.2% from the 12,154 units in January 2015.

Rural starts fell 18.2% to 508 units.

Meanwhile, starts of single family homes in Canada’s urban areas – defined as towns and cities with populations or 10,000 or greater – were essentially flat at 3,082 in January, one unit more than in the same month of 2015.

However, starts in the multiple unit segment – which includes condominiums in both the apartment and townhouse style – fell 21.9% to 6,598 units in January, compared to 8,447 units in January 2015.

The slowdown came as no real surprise to Diana Petramala of TD Economics, who pointed out in her note there are some signs that housing inventories in a majority of markets across the country are getting higher. This when combined with economic and housing market weakness is putting downward pressure on the growth in home prices.

“The concern is most acute in the Prairie Region, where the drop in oil prices has delivered a pretty heavy blow,” Petramala said. “While the market in Ontario (mostly the Greater Toronto Area) remains pretty tight for new, it is showing signs of rising inventory of new unsold homes which should loosen market conditions in the coming months.

“The one conundrum is B.C., where a bigger pop in new home construction was expected given the recent record breaking activity in the existing home market,” she continued, adding this seemingly depressed construction activity is likely to keep home prices in that province, and particularly Vancouver, fairly lofty yet again this year.

“The combination of economic weakness and too-much building in 2015 is expected to pull housing starts down to more sustainable level of 178,000 units in 2016, following the 194,000 units started last year,” Petramala said. “With interest rates expected to start creeping up gradually through 2016 and 2017, we could see a further 5.4% pull pack in starts in 2017. As such, new home construction will likely become a drag on real GDP growth through the second half of this year and into next.”