(Ottawa) The Canada Mortgage and Housing Corporation (CMHC) announced that the annual pace of housing starts increased by 16% in July compared to June. Analysis with three economists.
The surprise dissected
The national housing agency reported that the seasonally adjusted annual rate of housing starts in Canada for July was 279,509, up from 241,643 in June. Desjardins notes that economists’ expectations were for 245,000 units. The unexpected increase is directly related to “stronger-than-expected multi-unit housing projects,” adds Kari Norman, economist at Desjardins.
“Builders began building a larger-than-expected number of units in July, with Ontario posting its best month in more than a year,” TD Bank economist Maria Solovieva wrote in a report.
However, Mme Solovieva notes that despite the rebound, housing starts remain below the peaks seen in 2021 and 2022, particularly in single-family and semi-detached homes.
“We expect multifamily units to contribute to a decline soon, given low pre-sale activity in recent years and high borrowing and construction costs,” she wrote.
The supply of affordable housing is a key policy issue. All levels of government have tried to do what they can to help stimulate the construction of new housing.
Robust despite the real estate slowdown
The housing starts report follows figures from the Canadian Real Estate Association released Thursday, which showed that while home sales in July were up 4.8 per cent from a year ago, on a seasonally adjusted basis they were down 0.7 per cent from June 2024.
Residential construction activity remains robust in Canada despite the obvious slowdown in the resale market, according to Robert Kavcic, BMO’s senior economist.
“The fact that such a cyclical component of the economy has not buckled under the impact of significantly higher borrowing costs suggests that more structural forces still at play are outweighing some areas of weakness,” Kavcic wrote in a report.
Cities versus countryside
The increase came as the annual pace of urban housing starts increased 17% to 261,134 homes for the month.
The annual rate of urban multi-family housing starts increased 21% to 217,306 units in July, while the pace of urban single-family housing starts increased 2% to 43,828 units.
The annual rate of construction starts in rural areas was estimated at 18,375 housing units for the month.
CMHC says the six-month moving average of the seasonally adjusted annual rate of housing starts in Canada increased 3.2 per cent to 255,783 units in July, up from 247,840 in June.
Outlook according to Desjardins
- The gradual reduction in interest rates that began in June should stimulate housing starts, as should recent government programs, particularly those promoting the construction of traditional rental apartments.
- However, challenges such as construction labour shortages, rising material costs and declining builder confidence are tempering this optimism.
- The decline in pre-sale activities in the condominium market should also slow the rate of construction starts observed at the start of 2024, despite a favorable change in monetary policy.