The Canadian housing market seems to be tempering itself, as the number of houses that started construction in April saw a decline for the first time in three months.
Some analysts are calling the slowdown the “new reality” for the housing market.
“Canadian homebuilders are facing the new reality that the decade-long housing boom has ended, and are retrenching in orderly fashion,” wrote Sal Guatieri, a senior economist with BMO Capital Markets, in a research note. “They are cruising below annual household formations of about 185,000, reducing the risk of a supply glut now that demand has slackened.”
Levels Come Closer to Historical Averages
According to data released by the Canada Mortgage and Housing Corporation (CMHC), housing starts hit a seasonally adjusted annual rate (SAAR) of 174,858 units in April versus 181,146 recorded in March.
“As expected, the trend in total housing starts continued to moderate in April,” says Mathieu Laberge, Deputy Chief Economist at the CMHC. “As a result, it drew closer to its historical average and is in-line with estimates of household formation.”
The adjustment suggests a continued leveling out of Canada’s housing market, easing some of the fears held by the International Monetary Fund and the Bank of Canada that the market might overheat.
Urban Centers Saw Biggest Slowdowns
A slowdown in the condo market seems a major catalyst with multi-unit urban starts falling 3.5 per cent in April to 93,500. Single-unit work fell 0.9 percent to 60,100 units.
“We see this cooling as a very healthy development since there was overbuilding in some segments of the market, like the Toronto condo market, which could have posed a real problem to the economy if it continued,” wrote Guatieri.
On a regional level, urban starts fell by nearly 41 per cent in Atlantic Canada, about 15 per cent in Ontario and 5.6 per cent in British Columbia.
On the upswing was Quebec, climbing 14.8 per cent and the Prairies, which saw an increase of 9.3 percent.
The rural regions were estimated at a SAAR of 21,330 unit starts in April.
New Mortgage Rules Contribute to Cooling
Starts, resales, building permits and prices have all seen a cooling in light of Finance Minister Jim Flaherty’s tighter regulations for the mortgage market and lending practices that went into effect last summer. One of the key regulations is cutting the maximum length of an insured mortgage from 30 years to 25.
“All in, the Great Canadian Housing Market Crash remains one elusive beast,” Guatieri states.
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