Canadian housing starts pulled back to 217k in September, but beat expectations for a larger decrease to 210k. This performance comes after two months of mid-220k performance with August starts revised up slightly to 226k.
The single family segment (+5k) increased on the month with multifamily starts in large CMAs accounting for the entire decrease (-16k) on the month. Rural homebuilding also rose (+2k).
Provincially, the losses were concentrated in Ontario (-18k), which had the worst month since May, while Quebec (+2k), B.C. (+2k), and Atlantic Canada (+4k) saw faster pace of homebuilding. In the Prairies, the pace was largely unchanged (-1k) with gains in Alberta more than offset by losses in the other two provinces.
Activity in Toronto, the country’s most closely-watched housing market, fell nearly 19k to 35k – the slowest pace in four months. Vancouver also decreased, falling by 3k to 19k – the lowest pace since January. On the other hand, starts in Montreal more than doubled to 36k – the fastest pace in two years.
Key Implications
Today’s report is a bit of mixed bag, with starts pulling back, but remaining above expectations and the decline concentrated in the volatile multifamily starts. While starts in Toronto remain under close watch, given past regulatory changes, the overall market appears to be taking higher interest rates in stride and remains healthy.
While Ontario was behind much of the weakness in September, provincial housing starts for the third quarter are at the second highest level (after the red-hot first-quarter) in more than five years. This suggests that so far, the market is adjusting well to the provincial Fair Housing Plan that injected some uncertainty in previous months.
All in all, we expect Canadian housing starts to tick up in the following month, given multifamily volatility, but begin to trend lower toward the end of the year and fall below 200k during 2018 as the effects of rising interest rates bite (another BoC hike is still likely later this year) while potential new B20 regulation from OSFI may further weigh on demand.
