Canada’s housing starts rise in September, likely to moderate by early-2017

Canada’s housing starts increased in September. It rose to around 221,000 annualized units from 184,000 units in August. This pushed the six-month moving average to 200,000 units. Housing starts rose an equal 20 percent between urban and rural areas. Multi-starts in urban areas quite certain led the way with a rise of 22 percent in the month; however, single-detached starts also increased by 15 percent, noted TD Economics.

Construction rose widely throughout Canada. Atlantic Provinces led the way by recording a rise of 87 percent, followed by British Columbia and Quebec that registered a rise of 39 percent and 33 percent respectively. According to CMHC, the strength in Quebec was because of a rise in building of senior rental buildings. The only exception was Ontario, which recorded a decline in housing starts by 4 percent in September.

On a trend basis, housing starts have been range bound since August 2015, swinging between 195,000 and 205,000. This pace of new home construction might have been seen as too hot relative to the rate of household formation, but record immigration in 2016 and a 3 percent rise in the size of population aged 25 to 34 has probably led to a more rapid pace of household formation in 2015 and 2016, said TD Economics.

Low inventory, sharp increases in home prices and a relatively balanced housing market imply that the rate of new home construction in 2015 might be just right. However, the rate of housing construction is expected to moderate through the remainder of 2016, according to TD Economics. The new mortgage and tax regulation introduced by the Federal Government recently is expected to trim up to 10 percent off home sales in the remainder of 2016. Homebuilding activity would probably follow suit.

Overall, housing starts are expected to ease to a pace of around 180,000 units by early 2017, added Societe Generale.