Economists are expecting that the blistering pace of new home construction in Canada will start simmering down shortly. But they’ve said that before.
Canada Mortgage and Housing Corp. will release the latest figures Monday, and on average economists are forecasting that the data will show an annualized pace of about 200,000 housing starts.
“This may be the last hurrah in terms of the monthly numbers,” said Royal Bank of Canada economist Robert Hogue, who is expects Monday’s figures to come in at an annualized pace of 206,000 starts. “Granted the permits have still come in fairly strong in the last month, but housing starts are probably near their peak now,” he said. By early 2013 the pace should start cooling and that will last for at least a year or two, he suggested.
Economists, including those at CMHC itself, had similarly been forecasting a levelling off of housing starts for 2012. But construction continued to defy their expectations, especially in Toronto’s condo market. Last month CMHC said that it now expects housing starts will be in the range of 210,800 to 216,600 units this year, much higher than predictions at the start of the year. It expects starts to be in the range of 177,300 to 209,900 units next year.
“I believe that housing starts have peaked and that over the course of 2013 we will go back to the 180,000 or 185,000 level, which I believe is reasonable for this point of the cycle,” said Canadian Imperial Bank of Commerce economist Benjamin Tal. He thinks that most of the decline will come from the construction of properties with multiple units, namely condos.
Presales of yet-to-be-built condos have been falling in Toronto, which should translate into lower building permits and then lower starts, Mr. Hogue noted. And the resale market for condos and houses has cooled substantially in recent months. There is normally a lag of about six months before lower resales prompt lower starts, Mr. Hogue added. “So we’re probably in the last stages of that above 200,000 scenario on the starts side.”
Sales of new condos in the Toronto area during the third quarter of the year were 30 per cent lower than during the second quarter, according to Urbanation.
Nationwide resales fell significantly in August and have not shown a large rebound since. Sales in August were 8.9 per cent lower than the same month a year earlier, according to the Canadian Real Estate Association. September’s were 15.1 per cent lower than a year ago, and October’s 0.8 per cent lower.