Canadian housing starts fell 4.9% m/m to 213.4k (annualized) units in December. Still, the level remained healthy and follows an upwardly revised November print of 224.3k (previous: 215.9k). On a six month moving average basis, starts fell to 207.0k from 212.3k.
The dip in December starts was concentrated in multi-family units, which fell 6.5% to 149.8k units. Single-detached starts were flat, coming in at around 63.7k units.
Homebuilding was lower in seven of ten provinces. Starts increased in Nova Scotia (+1.6k to 5.5k units) and Quebec (+2.7k to 52.7k units – the strongest pace since June). Starts also jumped to their highest level since late 2017 in B.C. (+10.6k to 50.9k units). On the other hand, starts experienced notable declines in Ontario (-15.1k to 70.5k units), Alberta (-6.8k to 19.0k units) and Manitoba (-3.2k to 6.7k units). Starts remained low in Saskatchewan (2.5k units) while dropping in every other Atlantic province, with the sharpest percentage decline (-24%) occurring in PEI.
Key Implications
This was a strong report, with a healthy pace of starts in December combined with an upward revision to November’s already-healthy print. Homebuilding is being buoyed by strong population growth, on-going job gains, and past growth in pre-construction sales.
With the solid December level, starts are up 10% in the fourth quarter compared to Q3, helping offset the impact of weak sales activity on residential investment and providing a welcome dose of good news for the economy overall. Still economic growth looks likely to slow to a sub 2% (annualized) pace in Q4, weighed down by production cuts in the oil sector.
We expect homebuilding to glide below the 200k mark in 2019 as higher mortgage rates, tighter lending conditions and strained affordability in key markets weighs on demand. Overbuilt markets in the Prairies and moderating pre-construction sales activity are also factors which should cool the pace of new housing construction moving forward. On the supportive side, a rising population coupled with continued – albeit slower – economic growth should ensure that the moderation remains orderly.
