Canada’s housing starts dropped by 13% to 187,000 units in July 2008 versus the previous month’s level of 216,000 units. A figure below 200,000 units in Canada has been a rare event of late. December of last year was 185,000 units, but you have to go way back before then to encounter another occasion.

But this leads into another observation. For some time, housing starts in Canada have seemed unsustainably high. They have been over 200,000 units on an annual basis for the past six years, 2002 through 2007. During that time, they averaged 223,000 units per year.

Canada Mortgage and Housing Corporation (CMHC), on August 15th, released its latest forecasts of housing starts in Canada. CMHC is now calling for 215,000 units in 2008 and 194,000 units in 2009.

We, at CanaData, are in the process of reviewing our forecasts, but our previous numbers were 210,000 units in 2008 and, similar to CMHC, 195,000 units in 2009.

Canada is starting to track U.S. housing starts downward. However, the magnitude of decline should not be anything like as great. U.S. starts have fallen nearly 60% from their peak in January 2006 to the present. A comparable degree of decline would see Canadian starts drop to only 100,000 units.

The last time Canadian starts were anything like that low was in 1995, when the annual total was only 111,000 units.

All indications are that interest rates are low enough, employment levels are high enough, home prices are reasonable enough and economic prospects are strong enough − based on resource wealth, if nothing else − to maintain housing demand at only slightly below 200,000 units as a floor level.

Alex Carrick

Find Canadian construction-related economic articles in Canadian Construction Market News and in the Economic Outlook section of Daily Commercial News.

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