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Housing starts slowed much more sharply than expected in July, as the fevered pace of condo and other multiple-unit dwelling construction in Ontario cooled, at least briefly, Canada Mortgage and Housing Corp. said Monday.
Starts came in at a seasonally adjusted annual rate of 186,500 units, down from a revised 215,900 units in June, and were substantially below an average forecast by economists of 210,000 for July.
This is just the fourth time since January, 2003, that this rate has come in at below 200,000 units, the most recent occasion being in December of last year, CMHC statistics show.
The housing agency released its data as figures from Statistics Canada showed that new-housing prices increased at their slowest pace in more than six years in June – 3.5 per cent year over year, compared with 4.1 per cent in May. This continued a slowdown that started in September, 2006, and Statscan attributed the latest leg to a softening market in Western Canada.
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CMHC said multiple-unit starts fell by 20.2 per cent to 91,600, with Ontario, and more particularly, Toronto, accounting for virtually all the drop. Single home starts, meanwhile, dropped 6.6 per cent to 69,800 units, with the decline experienced across the country.
Brent Weimer, the agency's senior economist, said that the “volatile multiple segment is now readjusting itself” after a strong first half. “This brings activity since the start of the year closer in line with our 2008 forecast of more than 200,000 housing starts for the seventh consecutive year.”
The agency is looking for about 214,000 starts in all this year, Mr. Weimer said when reached at his Ottawa office.
However, Jason Mercer, CMHC's senior market analyst for the Greater Toronto Area, cautioned that construction timing for large-scale high-rise projects of the sort that have dominated recent housing development in the city and its environs have “routinely resulted in month-over-month starts volatility.”
The change in year-to-date, rather than monthly, housing starts, he added, gives a “more accurate reflection.” And for the GTA, the 15,832 multiple-family unit starts for the first seven months of 2008 are running 57.1 per cent ahead of the comparable period last year.
Real estate industry consultant Barry Lyon also argued that housing start data can be misleading because of time lags, and that sales are a more accurate guide to the true the state of affairs.
“Construction is often a year or two years behind sales, so the construction being reported now is a result of sales done a year or a year-and-a-half ago,” said Mr. Lyon, who heads Barry Lyon Consultants Ltd. in Toronto.
Of the 126 new mid- and high-rise multiple unit projects launched in the GTA in 2007, he said in a telephone interview, construction has so far started on just 62.
Part of the reason is that lenders generally demand projects be 70 per cent sold in advance before they will make construction loans.
Instead, added Mr. Lyon, sales figures are “much more meaningful, and while they have fallen, they “are not down dramatically,” he said in a telephone interview.
The numbers from CMHC mark the third time in three business days that private sector forecasters have been proved too optimistic on key economic indicators.
Last Thursday, Statistics Canada revealed that the value of building permits issued in June was $6.3-billion, down 5.3 per cent from May, where Bay Street had forecast a dip of just 1 per cent.
On Friday, meanwhile, Statscan shocked observers by disclosing that the nation lost 55,200 jobs last month, where forecasters had predicted a modest gain of 5,000 jobs, the largest monthly loss since the 1991 recession.
“This report was fairly ugly, and adds to the growing body of evidence pointing to the cooling in the Canadian housing sector,” TD Securities economics strategist Millan Mulraine said in a note to clients.
Mr. Mulraine also said the recent slowdown “is in no way comparable to the prolonged correction that we have been seeing in the U.S. Going forward, we expect a bit of a bounce back in starts, as we believe that the long-run trend for starts remains somewhere in the 200,000 to 220,000 region.”
Royal Bank of Canada assistant chief economist Paul Ferley also drew a sharp distinction between the health of the Canadian and U.S. housing sectors.
He said the bank is forecasting that Canadian starts will fall an average 5.8 per cent this year and 14.8 per cent in 2009. But these declines “represent a modest pace of slowing in contrast to the plummet in activity in the U.S., where starts fell 26 per cent last year and are expected to decline another 30 per cent this year before modestly recovering 5 per cent in 2009.”
Statscan, meanwhile, said that the June increase in contractors' selling prices for new housing was the slowest rate since March, 2002, when the figure was 3.4 per cent.
The year-over-year performance ranged from a dip of 0.4 per cent in Victoria, to a jump of 28.5 per cent in Regina, where prices continue to soar because of labour shortages and increased materials costs, Statscan said.
The second-largest jump, at 22.2 per cent, came in St. John's, which outstripped Saskatoon for the first time since December, 2005. Prices in the prairie city jumped just 16.3 per cent, compared with 30.2 per cent in May.
In Toronto, new housing prices were up 3.8 per cent from a year ago, while Montreal's were 5.6 per cent ahead and Halifax's by 7.2 per cent.
