Housing starts in Canada pick up in June

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The recent downturn in the resale housing market in the Toronto region has not deterred builders, who have continued to break ground on new home construction at a strong pace.

Data released Tuesday by Canada Mortgage and Housing Corp. shows housing starts climbed 60 per cent in Toronto in June over May based on seasonally adjusted data at annualized rates. The increase included a 54-per-cent climb in starts of single-family detached homes and a 63-per-cent increase in starts of other types of housing such as semi-detached homes or condominiums.

The numbers suggest many builders are proceeding with planned projects despite a significant recent drop in home sales in the Toronto region. The number of homes sold in the Greater Toronto Area fell 37 per cent in June compared to the same month last year, and prices were down almost 14 per cent from their peak in April.

Bank of Montreal economist Robert Kavcic said it is too early to conclude that builders are shrugging off the sales trend, however, because construction starts tend to lag sales data. He said projects will often proceed when they are in the advanced stages of planning, so it could take six months or more before new construction tapers.

However, Mr. Kavcic said many builders may not ultimately be deterred. The decline in sales in the Toronto region is greatest for detached homes priced above $1.5-million, he said, and most new construction is not in that price range, so there could be less of an impact.

"A lot of the new supply is in the middle range of the multiunit market, so I don't think you're going to see as big an impact on supply as you are seeing on prices in the resale market," he said.

Much of Toronto's 60-per-cent increase in starts in June over May also comes from a particularly low base in May, when housing starts dipped sharply after climbing by 46 per cent in April.

National Bank of Canada economist Marc Pinsonneault said June reflected "a more normal level of starts" for Ontario – especially in Toronto, Oshawa, London and Kingston – after a weak showing in May.

On a national basis, CMHC said its six-month moving average of monthly housing starts – a measure designed to smooth the choppiness of monthly data – has reached its highest level in almost five years, suggesting the new housing sector continued to grow steadily in the first half of 2017.

"So far this year, all regions are on pace to surpass construction levels from 2016 except for British Columbia, where starts have declined year-to-date after reaching near-record levels last summer," CMHC chief economist Bob Dugan said in a statement.

Vancouver has seen a particularly sharp drop in condominium starts, with 880 units launched in the first half of 2017 compared with 3,290 in the first half of 2016, CMHC said. However, the agency said there had been a record number of new units already under construction so "it is not surprising to see starts trend downward according to industry capacity."

In the Toronto region, CMHC said starts of ground-level houses – including detached homes, semis and townhouses – have gained momentum in the first half of 2017 with housing starts reaching a five-year high for the six-month period.

Toronto-Dominion Bank economist Dina Ignjatovic said the improvement in housing starts in Toronto in June compared to May could be a sign that new home construction may not be significantly impacted by new measures introduced in April by the Ontario government to cool the overheated housing market.

"While the province's housing starts are unlikely to return to the highs seen early this year, we expect them to hold near current levels going forward," Ms. Ignjatovic said in a research report.

Ms. Ignjatovic also said an interest rate increase from the Bank of Canada on Wednesday would mean the housing sector is likely to be "slightly weaker" than TD currently expects, with the impact of a rate hike most pronounced in Vancouver and Toronto where home prices are highest.