New home construction disappoints in April
By Roma Luciw – Globe and Mail
Canadian housing starts eased in April, knocking the pace of construction on bellwether single-unit new homes to their lowest level since October, 2001 as buyers were forced to look at cheaper options like condos.
The seasonally adjusted annual rate of housing starts fell 1% to 211,900 units last month from March’s 214,000 units, according to Canada Mortgage and Housing Corp. Economists had been calling for starts to rise to 215,000 units.
“The slight decrease in housing starts is the result of declines in single-detached and rural area starts,” Bob Dugan, the agency’s chief economist, said in a statement.
Economists, however, were not worried about the month-over-month drop, saying it was expected after the record activity and price gains in recent years.
“Clearly the Canadian real estate market has slowed from its red-hot pace over the last few years,” said Jacqui Douglas, an economics strategist with TD Securities Inc., adding that she expects the slowdown will be “orderly” since Canadian house real estate did not rocket higher the way they did in the United States.
“Overall, we anticipate that Canadian housing starts will slow to an average of about 200,000 through 2007, bringing the pace of home construction in line with demographically supported levels.”
Eric DubÃ©, an economist with the National Bank of Canada, said overall activity remains high with starts on track to post another quarter above the 200,000 mark for a record 20th quarter in a row. “Looking ahead, however, we do expect this sequence to come to an end in second half of 2007.”
He expects starts will cool to 185,000 range by the end of the year, to an annual average of 200,000 in 2007.
CHMC confirmed that growth is slowing, and said Tuesday that actual starts, in rural and urban areas combined, have dropped around 6.6% in the first four months of 2007 when compared to the same period last year.
Actual single-family starts in urban areas were 14.5% lower than a year earlier, while actual urban multiple starts fell 4.7%. “The larger decrease in single starts reflects the growing interest in less expensive multiple units, which was expected after several years of strong price growth” Mr. Dugan said.
Single starts were also weak in the month of April, falling 1.2% to 84,300 units. Urban multiples starts, a volatile category that encompasses semi-detached homes, townhouses, condos and apartments, rose 2.3% to 94,700 units.
“Aside from February’s weather-induced plunge, single-unit starts are now sitting at their lowest level since October 2001, and are down 9.4% lower year-over year while multiple starts are down a mere 0.7% year-over year,” Ms. Douglas said.
The recent boom in Canada’s real estate market has bolstered the price tag of new homes across the country. Declining affordability for detached homes in cities like Toronto and Calgary, along with increasingly scarce land in urban centres like Vancouver, has increased the interest in less-expensive multi-unit dwellings like condos.
Rural starts dropped to an annual rate of 32,900 units last month from 36,100 in March.
Although regional disparities remain, the weaker residential building activity is a phenomenon unfolding across Canada.
Dawn Desjardins, a senior economist with RBC, said that although the real estate report is a little softer than forecasts, it will not damp expectations of a rate increase from the Bank of Canada.
“Conditions are in place for starts to remain solid this year given the tight labour market, rising incomes and relatively low interest rates,” she said, adding that she expects job creation will slow and interest rates will edged higher this year. “Still, no signs that the real estate market is under significant stress, (unlike in the U.S.) and we expect housing to be only a marginal drag on growth in 2007.