Canada’s housing starts rises in June; high demand to boost new home building in near-term

Canada’s housing starts reached 218,000 units in June, an increase from 187,000 units in May. The six-month moving average trend in the housing starts increased to 198,000. Canada’s housing dialogue has rapidly moved to supply-side dynamics, with several arguing that land regulation and building approval are responsible for increasing home prices in the country's hottest housing markets, noted TD Economics in a research report.

Spending in Toronto and Vancouver’s housing has risen by nearly 60 percent since the start of 2014 that represents the highest two year increase in housing demand on record. According to TD Economics, the supply response has been delayed, but June’s housing starts report “is a good sign that it may be coming”.

In the mean time, interest rates have been lower too. The standard five-year fixed mortgage rates are currently in the range of 2.2 percent and 2.6 percent. This is expected to sustain for a certain period of time. The benchmark five-year bond yield is likely to be quite flat throughout 2016, said TD Economics.

Rebuilding in Fort McMurray, along with continued low interest rates and high demand in Ontario and British Columbia will keep on stimulating new home building in the near-term.

“We expect starts to trend near 200k for most of 2016, before higher interest rates take some steam out of overall housing activity in 2017,” stated TD Economics.

June’s report showed that the month’s gains were driven by multi-unit construction that rose 27 percent. Single-family homes grew just 1.7 percent; however, the gain extended the upward trend in single-family construction that started in mid-2015. In Toronto and Vancouver, single-family starts rose 13 percent and 17 percent year-on-year respectively.

Region wise, British Columbia registered a rise of 38 percent, while Ontario recorded 27 percent gain in housing starts. Both the regions represented the highest rise in the country. Growth in Ontario was mainly because of a sharp increase in apartment construction in Toronto. In the Prairie Region, housing starts grew more modestly by 9 percent. This is possibly because reconstruction efforts in Fort McMurray started, although very cautiously.