Ontario Bucks National Trend of Slower Housing Starts in July, says CMHC

Ontario bucked a national trend that saw the pace of construction of new homes slow in July, the Canada Mortgage and Housing Corp. said Friday.

CMHC’s seasonally adjusted annualized rate of housing starts fell by 9.6 per cent in July to 222,013, compared with 245,455 in June.

However, the decline was smaller than expected and CMHC’s six-month trend rose to 208,970 units from 205,765 units in June.

Economists had estimated a seasonally adjusted annualized rate of 203,500, according to financial markets data firm Refinitiv.

CMHC said housing starts in urban areas fell by 10.4 per cent in July to 209,122 —led by a 12 per cent decline in multiple-unit dwellings to 162,722 units. Single detached urban starts fell 4.6 per cent to 46,400 units.

Housing starts in rural areas rose 7.9 per cent to a seasonally adjusted annual rate of 12,891 units.

The “national trend” in housing starts increased in July, despite the reduced seasonally adjusted number, said Bob Dugan, CMHC’s chief economist, in a statement.

“High levels of activity in apartment and row starts in urban centres in recent months continued to be reflected in the high level of the total starts trend in July.”

While seasonally adjusted urban starts in the country’s largest province increased 4.2 per cent, they fell elsewhere led by a 43 per cent drop in Atlantic Canada and down 15 per cent in B.C., 9.6 per cent in Alberta and 8.2 per cent in Québec.

July home starts fell five per cent in Toronto, 23 per cent in Vancouver and 37 per cent in Montréal.

After a 25-per-cent surge in June that was the highest level since 1990, housing starts returned to more sustainable levels in July, said Krishen Rangasamy, senior economist with the National Bank of Canada.

That’s in line with the bank’s view of Canadian economic growth after a blockbuster second quarter, he wrote in a report.

“That’s not to say, however, residential construction is doomed for the rest of 2019. Note that in the last 12 months, there’s been an unusually large gap developing between permit applications and housing starts, perhaps reflecting builder caution amid uncertainties with regards to the economic outlook.”

Despite July’s drop, he continues to forecast that housing starts will average roughly 200,000 this year.

Sri Thanabalasingam, an economist for TD Economics, said declines across most provinces were more muted than anticipated last month, standing above their year-to-date averages.

“These data suggest that while residential investment is slowing, it will remain healthy in Q3,” he wrote.

Homebuilding also appears more robust with solid fundamentals such as increasing population, low interest rates and rising wages suggesting that “residential investment could see sustained healthy gains through the second half of this year,” he added.

But Royce Mendes, senior economist at CIBC World Markets said that after a decent start to the second half of the year, there are still headwinds for the Canadian housing markets.

“As a result, following healthy growth in the second quarter, residential construction could cool back down over the final six months of 2019.”

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