Housing starts up in February

OTTAWA – Actual housing starts skyrocketed in February, with activity soaring everywhere across the country expect the Prairies, where low oil prices continue to drag down overall economic performance, according to the Canada Mortgage & Housing Corporation (CMHC).

However, the federal housing agency said its trend measure of housing starts dipped slightly to 198,880 units in February compared to 199,107 in January. The trend is a six-month moving average of the monthly seasonally adjusted annual rates (SAAR) of housing starts.

“The national housing starts trend held steady in February, despite some important regional variances,” CMHC chief economist Bob Dugan said. “Housing starts are trending at a four-year low in the Prairies where low oil prices have weakened consumer confidence. At the same time, starts are trending at an eight-year high in British Columbia, as new and resale home inventories remain low.”

CMHC uses the trend measure to complement the SAAR to account for considerable swings in monthly estimates – driven largely by the multi-unit segment, which can vary considerably from month to month – to obtain a more complete picture of the state of the housing market.

The standalone monthly SAAR was 212,594 units in February, up from 165,071 units in January. The SAAR of urban starts increased by 30.9% in February to 200,231 units. Multiple urban starts increased by 46.0% to 138,774 units in February and the single-detached urban starts increased by 6.1% to 61,457 units.

Regionally, the SAAR of urban starts increased in British Columbia, Ontario, Québec, Atlantic Canada and decreased in the Prairies.

Rural starts were estimated at a seasonally adjusted annual rate of 12,363 units.

Actual starts for the month of February were 13,458 units – up 39.6% from the 9,643 units started in February 2015. For the first two months of 2016, starts totalled 22,652 units for a gain of 10.2% over the 20,555 units for the same period last year.

Starts of single family homes in what CMHC calls urban centres – towns and cities with a population greater than 10,000 – were up 8.4% to 3,240 units in February. For the year-to-date, starts were up 4.1% to 6,321 units.

Meanwhile, starts in the multi-unit segment – which includes townhouses, apartments and similar dwellings for both the condo and the rental market – were up 61.2% to 9,733 units for the month. For the year-to-date, they are up 12.8% to 16,331 units.

However, Dianna Petramala of TD Economics took this good news cautiously and advised this is probably not the beginning of a new housing boom.

“The regional divide in housing was especially evident in February’s new home construction activity,” she said in her note. “Starts were up by roughly 30% in Ontario, Quebec and the Atlantic provinces. They surged by almost 60% in British Columbia to the highest level on record since the early 1990s, reversing a previous provincial trend which saw new home construction lag the existing home market.”

She also pointed out starts in the Prairies have been at the lowest levels seen since 2011.

“There is no doubt that the combination of low interest rates and the general strength in housing market conditions across most of Canada has helped boost new home construction,” Petramala said, adding the surge in B.C. was long coming and will likely be encouraged by the provincial government’s recent decision to remove land transfer taxes on new homes worth less than $750,000.

While housing continues to surpass expectations, Petramala expects new higher down payment requirements for insured mortgages are expected to start a multi-year cooling in activity in Canada’s two largest markets – Toronto and Vancouver, which will impact both the new and existing housing markets.

She also noted that with the exception of B.C., most housing markets across Canada are amply supplied. “The Prairie markets, in particular, are facing a housing glut as weak economic conditions have triggered a housing market downturn,” she said.

This year’s unusually warm winter may have pulled forward at least some building activity that might otherwise have been delayed until spring. “As such, strength now, may be result in somewhat weaker data in springtime,” she opined, adding activity isn’t likely to sustained at its current pace and will edge down to a more sustainable level by year end.

“As such, residential investment may continue to boost real GDP growth in Canada through the first half of the year, but will likely become a drag thereafter,” Petramala said.