Population growth and solid labour markets continue to drive home building activity in Canada, especially in Ontario and Quebec, according to the latest data, which shows the pace of new housing starts in August climbing a better-than-forecast 1.9 per cent compared with July.
According to the Canada Mortgage and Housing Corp., Ontario led the increase with seasonally adjusted starts jumping to 81,457, followed by Quebec at 48,772. Toronto was tops in metropolitan areas with 3,131 starts in August, while Montreal placed second with 2,031.
Total new home starts trended higher in Toronto in August for all housing types except for semi-detached. Multi-unit home starts were led by condominium apartments because of strong pre-construction sales over the past two years. Despite single-detached homes trending higher in August, demand for this housing type continues to wane due to rising home ownership costs, the housing agency said.
The CMHC says the seasonally adjusted annual rate of starts rose to 226,639, up from 222,467 units the month before. Economists on average had expected an annual pace of 215,000, according to financial markets data firm Refinitiv.
The results reflect strong demographic demand from international immigration and new households created within the country, BMO Capital Markets senior economist Robert Kavcic said in a note.
“The construction side of the Canadian housing market still looks rock solid,” said Kavcic, adding that the rate of increase in Ontario over the past two years is high by historical standards, “but not out of whack given heated population inflows.”
In a separate report, TD Bank economist Rishi Sondhi noted that “moving forward, homebuilding is likely to remain strong through the remainder of this year, as solid demand fundamentals — namely low mortgage rates, healthy population growth and solid labour markets — underpin construction.”
According to Bob Dugan, the CMHC’s chief economist, the agency’s latest outlook forecasts a general cooling in the level of activity. “Specifically, housing starts were forecast to slow gradually over the 2018 to 2020 forecast horizon, moderating from the 10-year high recorded in 2017 to levels more in line with a moderating economic outlook and demographic conditions,” he said in an email.
“By 2020, demand is expected to continue to shift towards relatively less expensive housing options such as apartment condominiums. This combined with slowing growth in economic conditions will lead to modest average price growth over the forecast horizon.”
The housing market cooled last year after a rise in mortgage rates and tighter mortgage qualification rules aimed at curbing runaway price inflation. The market regained strength this year as offers from lenders for fixed-rate mortgages moved lower.
The CMHC report is in line with recent data that suggests the nation’s housing sector is stabilizing from a recent slump, easing concerns that some of the country’s more expensive markets like Toronto and Vancouver were poised for a major correction.
Earlier this week, Bank of Canada Governor Stephen Poloz said he’s confident housing will return to growth later this year, once some of the “froth” in those two markets dissipates. On Sept. 4 the central bank left its overnight interest rate unchanged but noted that housing activity “regained strength more quickly than expected,” which could add to already high household debt levels.
Written by Michael Lewis