Canadian builders broke ground on 252k (SAAR) housing units in November, 13% higher than October and marking a very robust level of activity. The 6-month moving average rose to 226k from 217k during the month.
Starts in the volatile multi-family segment drove the headline increase, advancing 16.5% in the month. Meanwhile, housing construction increased by 5.9% in the single-detached market.
Provincially, starts were up in 6 of 10 provinces, led by Ontario were starts increased by a whopping 38k to 98k units – marking the highest pace of construction since January. Starts were also higher in Manitoba (+1.5k to 6.9k units) and Alberta (+5k to 34k units) with the pace of homebuilding in the latter market the highest since March. New home construction also increased in all of the Atlantic Provinces except New Brunswick. In B.C., starts moderated slightly from the multi-decade high reached in October, though the level was nonetheless solid at 48k.
Starts in the closely watched Toronto market increased to 45k from 28k in October. However, they have slowed so far in Q4 versus Q3’s robust pace. Homebuilding activity in Vancouver dropped by 3k to 32k in the month. However, this follows a surge in October, leaving starts at a very healthy level. A similar story emerged in Montreal, with starts falling to 26k (down 15k) retracing some of the strong gain in October.
Key Implications
Homebuilding activity was extremely solid in November, rising to its highest level since April 2012. Housing construction has remained resilient this year despite the ‘one-two punch’ of regulatory measures aimed at cooling housing demand and rising mortgage rates. Ultimately, a healthy economic backdrop and firm population growth have provided support to homebuilding activity nationally.
In particular, Ontario’s sizzling monthly gain provides some evidence that market has so far been able to shake off the impacts of the Fair Housing Plan, which slowed sales and building activity earlier in the year.
Despite today’s blowout report we expect homebuilding to ease to a sub-200k pace in 2018, as higher mortgage rates and updated B20 regulations from OSFI weighing on housing starts, with disproportional impact on the Toronto and Vancouver markets where housing affordability remains highly stretched. Recent building permit data supports this view, with a softening trend in construction intentions in recent months pointing to a cool-off of starts activity in coming quarters.
