Two reports this week may help ease concerns of overbuilding in Canada’s housing market.
First, Statistics Canada on Monday releases its report on building permits issued across the country, which BMO Nesbitt Burns forecasts will show an increase of 3 per cent in May, compared with April’s 1.1 per cent. But the May number is expected to be driven by permits for non-residential construction.
More important, Canada Mortgage and Housing Corp.’s Wednesday report on housing starts is projected to show a drop in the number of residential real estate units that launched in June.
What will be widely watched is whether construction starts fell back into line with the pace of increase in the number of households being formed in Canada. That is what’s expected in the wake of May’s report, which showed a much higher annual rate of 198,300.
That annual pace is believed to have eased to somewhere between 181,000 and 190,000, based on the forecasts of several economists.
“Housing starts look to pull back to 185,000 units annualized in June, slightly below the 12-month average of 190,000,” said BMO senior economist Benjamin Reitzes. “That’s more or less in line with household formation, which should ease fears of excess building.”
Notably, National Bank Financial expects to see a drop in Montreal and Toronto in starts on condo construction, an area of particular concern.
Most Canadian economists, and the Bank of Canada, believe the overall housing market is heading for a soft landing, rather than a meltdown.
“Canada’s housing market continues to defy skeptics, with a solid spring selling season and rising prices,” Mr. Reitzes said. “The construction side is in decent shape as well, settling into a soft landing.”
Economists at CIBC World Markets expect to see that the pace of starts slowed to only 181,000 in June, a rate “not very far” from the trend they predict for the rest of 2014. “The Canadian housing market has remained relatively robust, despite many calling for a slowdown, or even a collapse,” they said in a research note.
“And with many mortgage lenders competing with increasingly attractive financing rates, all while the Bank of Canada stands pat on rates until the latter half of 2015, a sharp rotation from housing to exports and investment isn’t likely.”