Canadian housing starts ticked up a hair (+1k) to 223k in August, well above expectations for a pull-back to 216k. This marks the third consecutive month of increases and the second highest level since March’s blockbuster quarter-million print.
The single family segment (-2k) pulled back a touch while multifamily (+4k) homebuilding in large CMAs experienced an uptick on the month. Rural homebuilding was largely unchanged (-400) .
Provincially, the gains were all in Ontario (+16k), which had the second best month since January, while Quebec (+500) was largely flat. On the other hand, B.C. (-8k), Prairies (-3k) and Atlantic Canada (-1.5k) saw slower pace of homebuilding. In the Prairies, the losses in Alberta were nearly offset by gains in the other two provinces, while in Atlantic Canada the declines were across the board.
Activity in Toronto, the country’s most closely-watched housing market, rose by nearly 10k to 54k – the fastest pace in a year and a half. On the other hand, starts in other major metros were mostly lower, with Vancouver and Montreal both down 7k to 21k and 14k, respectively.
Key Implications
This was a good report that suggests that the Canadian housing market remains quite strong after the wobble it suffered in the second quarter and the uncertainty of regulatory changes in Ontario and rising interest rates. In fact, the August print marks the second best month this year while the six-month moving average is nearing the 220k mark – the fastest pace since late-2012.
Ontario was behind much of the weakness in during Q2 after the provincial Fair Housing Plan, which implemented a broad set of policies designed to remove some froth from the market, injected significant uncertainty, and motivated homebuilders to sit back as the market digested the newly implemented policies. At this point, it would appear as if they’re done sitting back, with strong demand owing to a robust economy motivating builders to ramp up production to compensate for the Q2 slowdown, and making Ontario the source of strength in the third quarter
All in all, we expect Canadian housing starts to remain relatively healthy in the coming months, but begin to trend lower as the effects of rising interest rates (another BoC hike likely later this year) and potential new regulation (the new B20 guidelines) gradually take a bite out of demand. Ultimately, starts should hold near the current levels in the next month or two, but trend towards the 200k level into early-2018 and fall below that threshold the year after.
