Canada’s housing starts remain strong, but likely to weaken

Canada’s housing starts have remained strong despite the significant changes to provincial and federal government housing policy since October of last year. Builders broke ground on about 222k homes in July, rising 4 percent from last month and holding the six-month moving trend at 218k. The rise in July was greatly focused in multifamily units, which combined were up 9 percent in July. Meanwhile, single-detached starts dropped 4 percent in the month, but were still holding almost a 77k units – a levels still well above the average of the last three years, noted TD Economics.

The Atlantic Regions recorded the most solid gains in July led by a near doubling in Nova Scotia, but construction in these regions could be highly volatile on a month-to-month basis. In unit terms, British Columbia and Alberta added the most to July’s gain. New housing construction in Ontario has eased from a record rate set in January, but is up on the month and still holding near a healthy 76k.

Given the lag between a new home sale and groundbreaking, it would seem that the strength in housing starts in the first six months of 2017 is greatly because of past strength in housing demand . Existing home sales have dropped for three straight months, starting what is believed to be a soft landing in Canada’s housing market, said TD Economics. The deceleration in the existing home market is expected to lead to a weaker rate of construction activity in the second half of the year, especially given mortgage rates are rising.

Given the falling demand, the current rapid rate of construction activity is likely concerning as far as implications for future housing supply. Housing starts are running well above estimates of household formation, especially in BC and Ontario.

“We look for housing starts to gradually grind lower, trending to under 200k later this year and dipping to below 180k next year as the cool-off in the existing home market spreads to new construction activity”, added TD Economics.

At 21:00 GMT the FxWirePro's Hourly Strength Index of Canadian Dollar was neutral at -5.63534, while the FxWirePro's Hourly Strength Index of US Dollar was neutral at 25.2267. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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