Housing starts to cool off
By Roma Luciw - Globe and Mail
There is widespread agreement that the pace of new-home construction will ease next year, but the housing market will get some support from a demographic wave that is coming of age.
Born between 1980 and into the late 1990’s, the children of the baby boomers have been dubbed the “echo” generation. It is a large and growing group — Statistics Canada estimates they account for 8.9 million of nearly 33 million Canadians. The oldest of the echo cohort are now in their mid-20’s, entering the workforce and looking to spend money on a home.
Toronto-Dominion Bank economist David Tulk said the echo generation will comprise a “large pool of first time buyers, which when combined with continued immigration, will provide further support to this mature stage in the housing cycle.”
The pace of new-home construction defied expectations and edged higher in November, led by strength in condos and apartments. Canada Mortgage and Housing Corporation said Friday that housing starts climbed less than 1% to 225,000 units from 223,200 units in October. Economists were expecting a rise of 220,000.
For the second straight month, the gains were driven by multiunit starts, a volatile segment that gets knocked about by the start of construction on large-scale apartment buildings, and also includes semi-detached homes, townhouses and condos. Urban multifamily-unit starts jumped 5.7% to 105,600 units, after surging 23% in October.
The gains in the multiunit category offset declines in the construction of detached single-family homes, the bellwether component of the new homes report. Urban single-family housing starts, the bellwether component of the new homes report, dipped 4.2% to 87,900 units in November.
Mr. Tulk said multiple-unit starts were bolstered by increasingly scarce land in urban centres like Vancouver and Toronto, as well as declining affordability for detached homes in cities like Calgary. He expects growth in multiple unit projects will remain robust as Canada’s cities continue to attract new immigrants, while “single unit starts will likely feel the brunt of the cooling housing market.”
Mr. Tulk forecast housing starts will remain solid at 205,000 next year and 195,000 in 2008, on the heels of this year’s projected tally of 228,000.
Adrienne Warren, a senior economist with Scotiabank, also believes the echo generation will support the housing market over the next decade, although to a small extent.
“We are seeing more of a cyclical downturn in the housing market but now you have the support of this demographic trend,” she said. The echo wave will most likely gravitate towards multi-unit dwellings like condos, which will be more affordable given how much housing prices have risen.
Ms. Warren noted that new immigrants, averaging 250,000 a year, will also boost demand for housing, particularly in Canada’s largest cities.
To date this year, Canada’s housing market has defied expectations and avoided the sharp downturn unfolding in the U.S. Canadian building permits surged to their second-highest level on record in October, according to a report released earlier this week, despite a consensus forecast predicting a drop.
November’s CHMC housing data did reflect some huge regional divisions at the moment, with bustling activity in the Prairie and Atlantic regions while the rest of Canada retreated.
Urban starts dropped 11.7% in Quebec, 7.9% in British Columbia and 3.8% in Ontario. Gains in the Atlantic and Prairie regions left urban starts up 21.4% and 26%, respectively.
Most economists agree that the strength will wane next year.
“With a slight dip in both economic and employment growth forecast for the coming year, housing starts in both the singles and multiples segments are expected to moderate,” sad CHMC economist Bob Dugan.
Jacqui Douglas, an economic strategist with TD Securities, also agreed that an easing is in the cards. “We expect to see the Canadian housing market make a gradual downward shift, as the economy slows and higher interest rates have an effect.”
———————————————————————————
Contact the Jeffrey Team for more information
