Wednesday, February 8, 2017 - 09:50

Canada Jan Housing Starts +0.5% to 'Strong' 207k;BC,ON Diverge

By Yali N'Diaye

OTTAWA (MNI) - Canadian housing starts rose a further 0.5% in January to a seasonally adjusted annual rate of 207,408, Canada Mortgage and Housing Corporation reported Wednesday, with data continuing to show a divergence between British Columbia and Ontario, where two of Canada's largest and most expensive markets are located.

"New home construction started off strong in 2017, both in terms of single-detached homes and multi-unit residential," said CMHC Chief Economist Bob Dugan.

The six-month trend showed a 1.0% increase to 199,834 units SAAR in January from 197,881 in December, with Ontario (ON) putting upward pressure on the national trend, while British Columbia (BC) has been slowing down since last summer. CMHC attributes part of the slowdown in BC to the fact that builders are "focusing on projects still underway."

Within urban centers -- with a population of 10,000 or more -- single detached homes were down 4.6% to a still robust 63,802, while multi-units were up 4.2% to 125,886.

Price gains in Vancouver, British Columbia, and Toronto, in Ontario, reached a pace last summer that made BOC Governor Stephen Poloz uncomfortable enough to send a warning last June about its unsustainable nature.

Last July, the BOC followed up in its interest rate announcement to stress that "financial vulnerabilities are elevated and rising, particularly in the greater Vancouver and Toronto areas."

Since then, signs of a slowdown have emerged in the Vancouver area, while Toronto has continued to power up.

Still, CMHC found in its quarterly Housing Market Assessment published January 26 that evidence of "problematic" conditions in the Canadian housing market remains "strong," citing overvaluation and price growth acceleration. It added that "imbalances at the national level largely reflect housing market conditions in Vancouver and Toronto."

Yet Wednesday's data showed the two areas further diverged in January.

Actual unadjusted housing starts rose nearly 27% in January from January 2016, to 12,964 units.

In Toronto, actual starts soared to 4,010 from 2,985 in December and 2,743 in November. Meanwhile, Vancouver recorded two months of declines, reaching 1,334 units in January, after 2,154 in December and 2,651 in November.

The tighter housing finance rules adopted at the federal level have most analysts and the BOC alike expecting a housing slowdown in months ahead.

However, it could go up before it goes down, as building permits in October rose 10.5%, with gains both in residential and non-residential sectors. In November, permits rose a further 1.1% in the non-residential sector, although residential construction intentions were down 2.4%.

"The recent strength in multi-unit projects could have further room to run," said TD analysts.

Yet the overall expectation is a soft landing, including by the BOC.

RBC economist Nathan Janzen cited "stretched affordability" and higher mortgage rates as factors that could contribute to slower housing activity ahead, while also pointing out that housing starts tend to follow existing home sales activity -- which has slowed down, especially in Vancouver -- with a lag.

"Although near-term permit issuance continues to point to near-term upside risk in starts," he said in a commentary, "we expect housing starts will, on balance, slow as the year progresses and continue look for overall residential investment to be a modest drag on overall GDP growth in 2017 for the first time in four years."

TD analysts expect central Canada to lead gains this year, while BC and oil-producing provinces should lag.

--MNI Ottawa Bureau; +1 613 869-0916; email:


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