Michael Babad – The Globe and Mail

Canada’s homebuilding industry suffered a setback as the year kicked off, with home construction on the decline and pointing to a lower level of activity.

Housing starts slipped in January to an annual pace of 180,248 units from 187,144 in December, Canada Mortgage and Housing Corp. said today.

A six-month moving average shows construction starts dipping to 191,456 in January from 194,518.

Comment: That is only a 1.5% drop, barely statistically notable. But the media has to jump on it and make sure they point out that housing starts are FALLING! Yeah…

“The trend in housing starts decreased slightly in January, while the inventory of newly completed and unabsorbed units saw a modest downward trend in the last half of 2013, the agency’s deputy chief economist, Mathieu Laberge, said in the report.

Comment: I think that is a very important point. After all the fuss made over the 800-1,000 unsold condo inventory in Toronto, spun to make it look like there are no sales and vacant condos all over the city, that number is dropping. So, the tiny number of unsold condos is now falling. Meaning that there are even fewer condos in builder inventory. Let’s shout that from the rooftops for once.

“This is consistent with our expectation that builders will continue to gradually adjust activity in order to manage their levels of inventory.”

Comment: Well that is reasonable. Unlike most.

Here’s what economists are saying today:

“A third consecutive monthly decline brought housing starts to their lowest level since April 2013, though bad weather in January and December may have weighed on readings in those months. As such, we may see some recovery in the next few months as weather normalizes … However, we expect modestly higher interest rates as 2014 progresses will weigh on housing affordability and lead to some moderation in residential building activity going forward. We forecast housing starts of 182,000 in 2014, down only slightly from the 187,000 units in 2013 though well below the 195,000 average seen in the second half of last year.” Josh Nye, Royal Bank of Canada

Comment: But interest rates are NOT rising. A couple of banks are flirting with bringing back the 2.99% 5-year mortgage.

“Underperformance of the Canadian economy relative to the U.S and the likely gradual increase of interest rates through 2015 will take some steam out of the demand for Canadian housing. We suspect that the pace of housing starts will continue their trek downward toward the demographically-supported level through 2015 … Over all, the recent cooling of housing starts supports our view for a soft landing of the Canadian housing market in 2014 and 2015.” Connor McDonald, Toronto-Dominion Bank

Comment: Interest rates won’t rise. People will still move here and need housing. The market is not going to land, not even softly.

“It wasn’t a good start to the year for residential construction with this below-consensus report for January. The decline in [multiple-unit building] shouldn’t be surprising considering the accumulating inventories of unsold condos in some parts of the country. Considering the plunge in residential building permit applications towards the end of last year, it’s unlikely that we’ll get a quick rebound in starts in the current quarter.” Krishen Rangasamy, National Bank Financial

Comment: Except Toronto condo inventory is dropping, not rising. Sure, there won’t be a quick bump, as fewer projects launch, due to lack of available land – in Toronto at least. With so many projects currently being built, in Toronto and elsewhere, it is not like the condo industry is going to grind to a halt.

“The data were a bit more encouraging in terms of GDP contribution, as the drop was all in multi-unit housing, with single starts rising more than 3%. The last two months readings are actually reasonably healthy given a harsh winter in some parts of the country, and roughly in line with the demand associated with population growth. Still, housing no longer looks to be a source of growth, and we will see the evidence of that in GDP reports as the large numbers of condos still under construction reach completion in 2014, and are replaced by a lower number of new starts.” Avery Shenfeld, CIBC World Markets

Comment: Now that was a great summary.

—————————————————————————————————–
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.
—————————————————————————————————–