Canada’s Home Building Industry Is Experiencing A Mild Economic Slowdown

“The national trend in housing starts declined for a fourth consecutive month in October, which leaves the trend at its lowest level since February 2017. However, despite declining for several months, the trend remains slightly above its long-run average because it follows historically elevated levels of activity in 2017.” (CMHC, Canadian Housing Starts Trend Decreases in October, November 8, 2018)

Canadian housing starts increased in October, following three previous monthly declines. Seasonally adjusted starts increased to 205.9k annual units in October from 189.7k units in September. October represented the highest new monthly start level in four months. On a six-month average basis, starts averaged 206.2k.

CMHC data indicate that the October's start increase was entirely centered in multi-family starts, which rose 17% to 149.1k units, while single-detached starts fell to 56.8k units. In other words, it was the increase in new construction projects such as condominiums, apartments and townhouses that pushed the annual pace of housing starts up in October.

Urban starts also rose in 5 of Canada’s 10 provinces.

Nonetheless, on a trend basis, CMHC data indicate that Canada’s homebuilding has embarked on what appears to be a rather modest slowdown, with softer demand primarily affecting single unit starts. Indeed, as one of the following charts illustrates, single unit starts in October fell to their lowest level since the Great Recession.

In conclusion, Canada’s housing market continues to stabilize despite the tougher mortgage rules introduced earlier this year. Moreover, the latest data indicate that while national housing construction may be slowing, starts are still slightly above long-run household formation rates.

Looking ahead, housing demand growth is expected to be quite modest, and this should keep a lid on Canadian homebuilding during 2019 and 2020.

Nonetheless, the outlook for homebuilding is still rather positive, since the economy remains relatively strong and demographic pressures will still require new units to be built. 

Canadian Annual Housing Starts