RSSA Jaw-dropping Level of Housing Starts in March
Canada Mortgage and Housing Corporation (CMHC) released its March 2008 figure on housing starts in the country today. The national total was 255,000 units, seasonally adjusted at an annual rate. This level has only been exceeded a couple of times over the course of the past several years. How can Canadian starts stay so high when the U.S. figure has dropped more than 50% since early 2006?
It seems unlikely that Canada’s level of housing starts can be sustained. There is a close tie-in between job creation and housing demand. Given the decline in the U.S. economy, the prospects for employment growth in Canada are weakening, due to this nation’s export-sales dependency. The latest Manpower Inc. survey recorded a decline in plans to add staff this year compared with a year ago, in all regions of the country.
Another disturbing trend is the buildup of unsold inventories. Unsold “singles” have reached a new high in this cycle and unsold “multiples” are back at a level similar to early 2007 and early 2005. The U.S. level of unsold new homes is about twice what it should be. In Canada, the figures for both singles and multiples are still only about 50% higher than normal, but they are on an upward trajectory. (See Market Insights story with charts.)
It has been the “multiple-unit” market that has really shone so far this year. The strength in multiples is partly a carry-over of condo units that were sold last year, but are only getting started this year. Many projects were temporarily delayed due to shortages of manpower and materials.
It is interesting to speculate on the reasons for the heightened demand for multiples. I can think of three primary ones. (1) Multiples generally have a lower price-point than singles and are therefore more affordable for many first-time home buyers. This becomes more important in cities where there has been a particular run-up in the cost of housing, such as Calgary.
(2) Aging baby-boomers and some seniors are selling their high-maintenance residences in the suburbs and opting for a more glamorous lifestyle in city cores. Sometimes they can even pocket some change for retirement in the process.
And, (3) there is a heightened awareness among foreigners that Canada is a good place to dwell, for at least part of the year. Canada is a safe haven for investment and the Canadian dollar has demonstrated more stability of late than the U.S. dollar, thanks to this nation’s wealth of resources and its self-sufficiency in energy.
Alex Carrick
