Housing starts are a good indicator of our economy’s health; shovels in the ground on new-home construction sites mean jobs for Canadians. It also shows consumers are feeling confident about making a home purchase, and that those same home buyers will go on to buy other big-ticket items, like fridges, stoves and furniture. All of this helps stimulate economic growth – but there may be some troubling times on the horizon for new housing in Canada. The Canada Mortgage and Housing Corporation (CMHC) reports that October housing starts have cooled to the slowest pace in seven months.
The Start of a Condo Slowdown?
CMHC’s monthly report shows housing starts in Canada equaled 195,707 units in October compared to 197,763 in September. “The decrease in the trend reflects a decline, in October, of starts of multi-unit dwellings, including condominiums,” said Bob Dugan, CMHC’s chief economist. “Given the elevated level of condominium units under construction, our expectation is that condominium starts will continue to trend lower over the coming months.”
However, fewer new condos isn’t all bad news; Toronto in particular has been leading the country in condo starts, causing investor concern that the market might be over saturated. With fewer units in the market, condo owners can feel more confident that their investments will hold their value.
The New Home Market Remains Strong
Despite softer starts, new home sales have continued to climb, indicating the consumer appetite is there. For example, the GTA new-home market continues to perform above the 10-year average after three quarters, the Building Industry and Land Development Association (BILD) said last month. BILD reports there were 30,143 sales of new homes and condominiums across the region as of September 30, up 54 per cent from last year and sitting nine per cent above the 10-year average.
Builders Are Confident
“This continued increase in new-home sales shows that purchasers remain confident in the market,” said BILD President and CEO Bryan Tuckey. “With the GTA experiencing an annual growth of up to 100,000 people, it is important that the industry builds approximately 35,000 homes each year so that they have a place to live. As recently as September, high-rise sales resulted in the third-best on record, while sales of ground-related homes increased 39 per cent from September 2013. The New Home Price Index for low-rise housing increased five per cent to $689,611 for a new record high. Meanwhile the high-rise market grew four per cent to $450,014.
October Traditionally a Slow Month
The slower starts could have a lot to do with the time of year; October tends to be the start of the slowest season for real estate. Fewer people are out shopping for a home at this time. The weather, the upcoming holidays and children’s school year all factor into this not being the best time to move. With condo units becoming more popular with families, developers may be holding off. Statistics Canada reports in 2011, one in eight households lived in condominium dwellings. Toronto, Vancouver and Montreal—had the highest number of households in condominiums, accounting for more than half (53.5 per cent) of Canadian households in condominiums, according to Stats Can.
What’s Next For New Housing Construction?
Economists had predicted a stronger report on housing starts, but are still confident moderate strength in the new home and condo market will continue. “Given the healthy building permit applications in September, we may see a rebound for the multi category, although the longer-term outlook isn’t all that rosy given the accumulating inventories of unsold condos in some parts of the country. We continue to expect a moderation in residential investment next year,” said National Bank of Canada senior economist Krishen Rangasamy in a research note. In my opinion, considering the time of year and the number of dwellings currently underway this one-month report should not been seen as trend setting.