Highlights:
- Housing starts fell to a 12-month low of 196k annualized units in May — well-below the 223k average in Q1
- The May drop was accounted for largely by big declines in the (often-volatile) multiple-unit component in Ontario and Quebec.
- The drop in May starts was probably overstated — permit issuance has remained very strong in recent months and weakness was concentrated in the often-volatile multiple-unit component. Nonetheless, we continue to expect slower home resale activity year-to-date will eventually spill over into slower homebuilding activity as well.
Our Take:
Housing starts dropped to 196k in May, down almost 10% from 217k in April and the first sub-200k reading in a year. The often-volatile multiple-unit component dropped 16% while single-unit starts rose 2%. Regionally, there were big declines in Ontario and Quebec — both driven by big declines in multiple-unit starts — but increases in the Prairies and British Columbia. Clearly there has been a slowing in home resale activity year-to-date in Canada following the implementation of new mortgage stress tests — and we expect that will eventually be followed by slower homebuilding as well. The drop in May starts, though, probably reflects ’normal’ monthly volatility more than a deterioration in underlying trends. Permit issuance has remained very strong, with 232k residential permits issued in April, arguing for at least some near-term bounce-back. On a six-month moving average starts were still an elevated 216k in May, still well-above most estimates of the underlying rate of household formation.
