Alberta remains resilient for the time being

Rahul Vaidyanath – Epoch Times

Homebuilding in Canada took a sharp turn lower in February as housing starts fell 16.4% month-over-month, according to Canada Mortgage and Housing Corp. (CMHC) on Monday, March 9. The drop exceeded forecasts by bank analysts.

The trend in housing starts, a six-month moving average of monthly figures, decreased for the fifth straight month.

Comment: Sure, but the standalone number rose 4.3% to 187,276 in January, up from 179,637 in December. That is also after 2014 ended with 189,401 actual starts, a 0.8% increase as compared to the 187,923 starts in 2013. How the trend keeps going down when the raw numbers are rising is beyond me.

Overall, housing starts fell to 156,276 annualized units in February, down from a revised figure of 187,025 in January. The tumble mainly came from multiple-unit starts (down 25.1%) as opposed to single-detached homes (down 4.1%). Multiple-unit starts dropped to their lowest level since January 2011, according to National Bank.

Comment: But the numbers vary widely and wildly from month to month. Note the chart showing the past 2 years of starts. The standalone numbers range from a high around 205,000 to a low of 155,000. That is a huge swing… so you can pick any month you want to try to make a point you want to make. Note also, that February 2014 was a very low point and Feb 2013 was not that high. Could be just that February is not a month developers choose to begin construction. For obvious reasons.

Regionally, most of the fall came in Ontario (down about 16,100), while Alberta fell only about 400. For Atlantic Canada and Quebec, the level of starts fell to their lowest level since February 1998 and December 2001 respectively, based on analysis from National Bank.

“The declining trend in multiple starts is helping to gradually erode the inventory of completed and unsold units, which is high compared to historical levels,” said CMHC chief economist Bob Dugan in a press release.

Comment: So that is good then, based on the panic everyone threw when it was announced that there were 1,600 condos that hadn’t sold.

Condo construction in Toronto got out of line with demographic demand in 2012, but the excess inventory is being whittled away.

Comment: When 31,000 condos complete in 13 months and 29,400 of them sell, that looks to match up with demand pretty damn closely. When 95% of a product sells, that indicates to me that supply is pretty well matched to demand.

RBC’s report on housing affordability in the fourth quarter of 2014, published on March 3, showed deteriorating affordability for all types of homes in Toronto, though condos showed the least amount of deterioration in affordability.

As one might expect with such a big drop, the impact was broad-based across the country (eight of 10 provinces). But while the biggest shock to the Canadian economy – the drop in oil prices – has taken the steam out of home sales in Alberta, housing starts along with home prices have not followed suit yet.

Comment: Actually they fell 1.6% in February. But listings are falling, which should slow things down. Sales may still drop, but I think they are now stabilizing.

Bank analysts feel the record-breaking frigid February in Ontario and the Maritime provinces likely played a role in the decreased starts. Conversely, the mild winter in Alberta may have helped cushion the fall in that province.

Comment: As I said, look back, historically February is a low point for housing starts.

But BMO, in a research note, sounded a warning for Alberta as the slide in oil prices has yet to take effect on new home construction.

“If the resale market is any guide, a meaningful slowdown in new construction will hit the province any month now,” said BMO.

National Bank expects about 175,000 housing starts for 2015 (189,300 in 2014), but points out in a research note, “starts are set to be a drag on economic growth in Q1 for a second quarter in a row.”

The housing market is definitely facing some trying months ahead. It has received a bit of a boost from the Bank of Canada rate cut on Jan. 21, but it looks like the central bank feels it has done its job for now and it’s up to the housing market to sort itself out.

“The bigger picture is that homebuilding activity on a national basis is consistent with demographic demand,” states BMO.

The housing starts drop in February looks to be an outlier influenced by the weather, but the trend in lower starts is clear, though not problematic from a supply and demand perspective.

Comment: Exactly. Weather is underlying cause, nothing more.

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Contact Laurin Jeffrey for more information – 416-388-1960

Laurin Jeffrey is a Toronto real estate agent with Century 21 Regal Realty.
He did not write these articles, he just reproduces them here for people who
are interested in Toronto real estate. He does not work for any builders.
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