Highlights:
- Housing starts in June soared to 248k up from 194k in May and market expectations of 210k.
- The jump in starts was almost solely attributable to urban multiples in Ontario jumping 172% to 79k from the 29k recorded in May. The increase was attributed to a surge in high-rise residential construction in the City of Toronto, Mississauga and Vaughan.
Our Take:
Housing starts jumped to an annualized 248k from 194k in May. Market expectations had been for a more moderate rise to 210k. The strength was concentrated in urban multiples which jumped 46.4% to a record high 173k from 118K in May. CMHC, which compiles the data, commented on wide spread strength in high rise residential construction in Ontario particularly within the City of Toronto, Mississauga and Vaughan. Urban multiples are volatile as the measure can reflect sizeable projects starting construction in a single month that was seemingly a factor in June. Our expectation is that this component will likely retrace most of the June jump contributing to overall starts moving back down closer to 200k. Rising interest rates, tightening mortgage lending standards and poor affordability in a number of local housing markets are expected to eventually more than offset supportive factors like strong labour markets and rising immigration. These restraining factors have started to weigh on resale activity of existing homes. Our expectation is that they will eventually start to weigh on new housing going forward. Lowering housing starts to more sustainable levels is expected to be a factor in favour of the Bank of Canada continuing to tighten policy with the next 25 basis point hike in the overnight rate expected coming out of tomorrow’s policy-setting meeting.
