Highlights:
- Housing starts fell to 195k annualized units in May from 213k in April.
- Residential investment is set to be a small drag on growth in Q2 following a double digit gain in Q1.
- Ontario and Quebec recorded sizeable declines but were still higher year-to-date relative to 2016. The Prairies saw an increase in May as homebuilding activity continues to pick up from last year.
- Both single and multi-unit starts declined in May. On a trend basis, single unit starts edged down from a multi-year high while multis continued to pick up.
- Building permits edged down to 200k in April, and on a trend basis, narrowed the gap between permit issuance and starts. That implies less upside risk to starts going forward.
Our Take:
Five months into 2017 and Canadian housing starts are still running at the strongest pace in five years, but it appears we are entering a cooling phase in the housing market that should see homebuilding activity moderate over the second half of the year. We expect that trend will be driven by Ontario, where starts are already beginning to retrace Q1’s multi-decade high. A decline in Toronto accounted for much of the province’s drop in May. It seems a bit early to attribute this to regulatory changes that began to cool the city’s hot resale market in April. Starts usually lag resale activity, so we think the true regulatory-induced slowdown will take hold later this year. Offset is coming from improving activity in the Prairie provinces as oil-producing regions continue to recover from a downturn over the last two years. And while homebuilding in British Columbia has slowed relative to last year’s torrid pace, there is risk that starts regain momentum alongside a nascent rebound in the province’s resale market. On balance though, we expect worsening affordability and housing policy changes will contribute to a slowdown at the national level. This will result in a modest drag on GDP growth from the residential sector, which has contributed positively in all but one of the past twelve quarters.
