Canadian housing starts drops slightly in September, but momentum stays strong

Canadian housing starts kept the momentum in September, coming in at a healthy 221.2k units. Sequentially, housing starts dropped 2.5 percent from July’s robust 226.9k level. Single-detached starts fell 8 percent to 58.6k units in the month. Nevertheless, they continue to be above the trough posted earlier in 2019. In the meantime, multi-unit starts came in flat at 162.7k units.

Starts pulled-back the most in Quebec in September. Still, the trend continues to be solid, in line with strong housing demand, low levels of unabsorbed inventories, and falling rental vacancy rates. Starts rose a bit in Ontario to 86.7k units, owing to the gains in markets outside of Toronto. This marked the second straight monthly rise. In B.C., starts rose 4.5k to 41.2k units after falling 28 percent in August. Homebuilding had been inflated prior to August because of builders pulling forward activity to beat a new development charge in Vancouver.

Housing starts in the Prairies rose 3.4 percent sequentially in the month. Homebuilding rose in Alberta and is trending higher from early-2019 lows. In Saskatchewan, stars rose 0.8k to 3.9k units. However, new construction remains low on a trend basis, amid relatively soft economic conditions. New housing construction in Manitoba fell 2k to 4.8k units, but has stayed reasonably healthy in 2019.

Meanwhile, starts came in slightly higher. Homebuilding rose in Newfoundland and Labrador. Nevertheless, it has been soft in 2019 in the midst of a falling population. Homebuilding was also higher in PEI and New Brunswick in September. In the meantime, housing starts fell in Nova Scotia in the month.

“September's outturn caps a strong third quarter for new housing construction which, alongside a probable increase in home sales, points to a healthy gain in residential investment”, said TD Economics in a research report.  

In spite of rising economic headwinds, new housing construction continues to hold strong. This reflects several factors, including past gains in pre-construction sales, low mortgage rates, sound job markets, programs to incent rental construction and rapid population growth.

“Moving forward, we expect the pace of homebuilding to remain above 200k through 2020, contingent on these fundamentals holding up. This view is consistent with residential building permits, which remained elevated in August (the report was also released this morning). The main downside risk to this view is the deteriorating global backdrop”, added TD Economics.