Canada's housing starts were cooled by an unexpected sharp slowdown in construction of new condominiums in October, sending them to their slowest pace in seven months.
Canada Mortgage and Housing Corp. reported that housing starts were at an annualized rate of 183,600 last month, down from 197,400 in September and far below the 200,000 anticipated by economists. Urban "multiples" starts – the condo segment – slumped 15,900, or nearly 14 per cent, to 98,700, their lowest in seven months. It marks only the second time since April, 2013, that urban multiples starts were under 100,000.
Urban single-family dwellings starts inched up 3,500, to 66,000.
Economists had anticipated more strength in the housing starts, given recent strong building-permits numbers, which typically foreshadow new construction. Residential building permits, by number of dwelling, rose 9.4 per cent in September (the most recent month reported), including a 12.9-per-cent rise in the multiples category. By value, residential building permits have risen more than 20 per cent in the past six months.
Still, economists noted that the overall trend in home construction remains strong. CMHC said the six-month average for starts is 195,700, down only slightly from 197,800 last month.
"Given the healthy building permit applications in September, we may see a rebound for the multi category, although the longer-term outlook isn't all that rosy given the accumulating inventories of unsold condos in some parts of the country. We continue to expect a moderation in residential investment next year," said National Bank of Canada senior economist Krishen Rangasamy in a research note.
Economists also noted what is probably a healthy cooling of a couple of major red-hot urban markets – Vancouver and Calgary. Housing starts slowed by 5,000 or 25.7 per cent in Vancouver, to 14,400, their slowest pace in 20 months. Vancouver's starts have now declined 46 per cent in the past two months, since hitting a peak of 26,600 in August. Starts in Calgary edged down 4 per cent, to 17,600.
By contrast, Toronto's starts jumped by 10,500, or 70 per cent, to 25,600, reflecting a rebound from a sharp decline in September.
"While recent home prices trends are starting to raise some eyebrows, there's little concern about overbuilding in Canada with housing starts trending near fundamental requirements. This is true in the 'hot 3' cities (Vancouver, Calgary and Toronto) as well, where resale price growth is heated, but new construction is largely following population trends," said Bank of Montreal senior economist Robert Kavcic.
"Building trends in these three cities largely mirror different population growth trends since 2012 – relatively stable in Vancouver, accelerating in Calgary and cooling in Toronto," he wrote in a report.
These three cities have been of keen interest to market watchers, as they have been the key drivers of Canada's continued strong housing market. Their strength has been getting particular attention of late from the Bank of Canada, which remains concerned about an overstretched housing market and household debt levels. Bank of Canada Governor Stephen Poloz recently noted that aside from these three hot markets, the rest of Canada's housing market looks to be running at a moderate pace.