Canadian housing starts drop in July, residential investment likely to see healthy gains in H2 2019

Canadian housing starts recorded 222k units in July, as compared with market expectations of 202k. On a sequential basis, housing starts dropped 9.6 percent, but this comes after a 25 percent sequential surge in June.

After recording solid gains in June, single-detached and multi-family starts both came down in July. While multi starts dropped 12 percent sequentially, the level was still an elevated 166.1k, near historical highs. Meanwhile, singles starts, which dropped 1.6 percent, continued to be near multi-year lows at 55.9k.

Province wise, all provinces except Ontario recorded reversals in July. British Columbia drove the reversal in housing starts, decreasing from 59.9k to 50.9k. Atlantic and Prairie provinces also saw huge contractions with Atlantic provinces losing 6.8k to 10k and Prairie provinces 7.4k to 37.3k in housing starts last month. Bucking the trend, housing starts in Ontario rebounded by 4.2 percent in July.

Building activity made a strong beginning to the third quarter, slightly softening from the one-off surge seen in June. As anticipated, reversals were seen throughout most provinces last month, but the fall was more muted than markets expected. For most provinces, the level of housing starts stood above their 2019 year-to-date average. These data imply that while residential investment is decelerating, it will stay healthy in the third quarter, said TD Economics in a research report.

“On the whole, homebuilding appears to be more robust than previously thought. While residential investment gains are expected to weaken from an extraordinary second quarter, solid fundamentals – increasing population, low interest rates and rising wages – suggest residential investment could see sustained healthy gains through the second half of this year”, added TD Economics.