Canadian housing starts jumped far more than expected in April, led by a surge in construction of condominiums, providing a fresh worry for policymakers already concerned that the property market could be entering bubble territory.
The seasonally adjusted annualized rate of housing starts was 244,900 units, up from 214,800 units in March and smashing through expectations that there would be 202,000 starts. The number of multiple unit starts, which includes condominiums and apartments, was the second highest on record.
“This report reflects unbelievable strength in (Canadian) housing starts, and all of the gain was in multiples again which reflect the ongoing Canadian condo craze,” Scotiabank economists Derek Holt and Dov Zigler said in a research note.
Both the finance ministry and the Bank of Canada have warned repeatedly about Canada’s hot housing market, singling out the sizzling condo markets in Toronto and Vancouver for particular attention. Concern centers on the fact that many buyers could have problems once interest rates, now near historic lows, start to rise.
March housing starts were revised down slightly from 215,600 units.
Canada Mortgage and Housing Corp said on Tuesday urban starts rose by 18 per cent to 226,200 units in April, driven largely by a 27.4 per cent increase in multiple urban units. Single starts were up a more modest 0.6 percent, the federal housing agency said.
The CMHC said the jump in condo starts partly reflects the high level of pre-sales in large multi-unit projects since 2011, which it said is in line with job gains over the last year.
Urban starts increased by a staggering 56.5 per cent in Quebec, 12.2 per cent in Ontario, 6.3 per cent in the Prairies and British Columbia, and 2.6 per cent in the Atlantic region.
“This print underscores the concern regarding the Canadian condo market - in particular in Toronto,” Mazen Issa, Canada macro strategist at TD Securities, wrote in a note to clients.
“We do not see this pace of starts as being sustainable and reaffirms concerns policy officials have noted regarding activity in this particular segment of the market.”
Mr. Issa noted that outside of starts, the housing market has shown some signs of cooling, with moderation in existing home price gains and resale activity.
Some analysts think that with the Bank of Canada starting to sound more hawkish on interest rate hikes, this theme may continue to play out.
Bank of Canada Governor Mark Carney has called excessive household debt the single biggest domestic risk to the Canadian economy as Canadians take out mortgages at extremely low borrowing rates, saying the country should heed the lessons of the U.S. housing crash.
The central bank chief has said monetary policy could be used, as a last resort, to curb housing-related consumer debt. But Mr. Carney warned it would be better for more targeted measures to be used first because raising interest rates would hit the wider economy.
As part of a broader effort to cool the hot housing market, Canadian Finance Minister Jim Flaherty announced last month that the government plans to have its bank regulator oversee the federal housing agency’s commercial activities.
But Mr. Flaherty has so far resisted calls by lenders and some economists to tighten mortgage rules for a fourth time since 2008.
He says he sees signs banks are regulating borrowing by themselves, and that the housing market is starting to correct itself.