Canadian housing starts fell 18% in December from the previous month, to just 172,965 (SAAR) units. However, this drop comes on the back of a very strong performance in the prior month, with contractors breaking ground on 212,028 units in November. On a 6-month moving average, the trend in housing starts still stands at an elevated 203, 502 units, with activity in 2015 pretty hot overall
Most of the weakness was concentrated in the highly volatile multi-unit segment (-27%) across major urban areas. Single-detached urban starts remained flat at 57,743.
There was a regional divergence in new home construction in December. The decline in starts was concentrated in Ontario (-39%), the Atlantic Provinces (-35%) and the Prairie Regions (-36%). Meanwhile, starts were up 26% in B.C. and 32% in Quebec.
With the drop in starts in December, the level of new home construction moved from a too-hot for comfort pace, to one more in line with underlying economic and demographic fundamentals. However, given changing weather patterns and the rising importance of the more volatile multi-unit component, one should not read too much into month-to-month swings in the data.
From a longer-trend perspective, CMHC noted that Toronto was the only major urban center to see any gains in new home construction in 2015, with starts topping household formation for the first time since 2012. Lower mortgage rates at the start of the year had fueled a jump in housing demand in the GTA and with some demand flowing into the new home market given the lack of supply and deterioration in affordability in the existing home market. However, some of that demand started to fizzle towards the end of the year, which should bring new home construction in the GTA back to a more normal pace during 2016. A rise in mortgage rates, gradual as they may be, will help bring housing activity in the GTA back to earth.
Elsewhere, the combination of weak economic conditions and overbuilding over the last few years has led to soft housing market conditions with the majority of markets across Canada are either fairly balanced or tipping into buyer's territory. This should keep a lid on new home construction for the next few years.
B.C. is the lone market, where market conditions are tight and new home construction remains well below pre-2008/2009 highs. Sharply rising home prices will hopefully encourage more homebuilding in 2016.
"We expect housing starts nationally to dip back to below 180,000 units through 2016, following an average of 181,598 over 2015", says TD Economics.
