Provincial and City Housing Start Forecasts: A 200,000-unit Year in 2008
Alex Carrick
CanaData is forecasting that total housing starts in Canada in 2008 will fall to 200,000 units after reaching 228,000 units in 2007. The 2007 level was almost exactly the same as was achieved in 2006 (227,000 units).
The peak in the latest cycle was 233,000 units in 2004. Housing starts in Canada have been exceptionally strong for the past six years. They have exceeded 200,000 units in every year since 2002.
Four Reasons to Expect Lower Demand
In 2008, there are several reasons to expect that the national starts figure will begin to drop off. First, the ripple effects of the U.S. slowdown will cause employment and income growth to moderate in the months ahead. This will cut into new housing demand.
Second, interprovincial population shifts (particularly to Alberta) are no longer as strong as they were a couple of years ago. More individuals are staying in their home provinces, partly because there has been a relative pick-up in economic activity in Saskatchewan, British Columbia and even the Atlantic (due to energy projects underway and proposed).
Third, high house prices are cutting into single-family housing demand in some regions, most notably in Alberta and B.C. High prices may begin to inhibit some high-end condominium demand moving forward as well. For example, condo towers in the Yorkville-Bloor area of Toronto are averaging over one million dollars per unit and foreign money (Middle Eastern, Asian and European) is believed to be behind much of the interest. There is a question of how deep this pool of capital is for Canadian properties.
The Nature of Cycles
The fourth and final reason is “satisfied pent-up demand.” As can be seen from south of the border, new housing demand has a definite cycle. At the start of the cycle, unsatisfied demand kick-starts the recover. That was the case in 2002, after Canadian housing starts wallowed through much of the 1990s. However, a form of inertia or exhaustion does set in after an extended period of high demand.
Vancouver may be First out of the Gate
As for city housing start forecasts, generalized declines are seen for the six largest cities (by population) in Canada in 2008. In 2009, Vancouver may be the first to emerge from the doldrums. This would coincide with a stabilization, leaning towards recovery, in U.S. housing starts since that result would initiate a recover in B.C.’s large and important forestry sector.
Member Comments
CanaData’s prediction of a 12.3% drop in housing starts is alarmingly close to the 14% drop in housing starts at the beginning of the recession in 1991. That drop began a long decline and starts did not recover to their pre-1991 level for over a decade.
The recent trend, as Mr. Carrick notes, is a leveling off. You would not expect an abrupt return to pre-2002 levels unless there was steep recession in the U.S. that had a strong effect on Canada.
Two of the other reason given for expecting a decline could just as easily be …
I would be interested in knowing why CanaData’s forecast of 200,000 housing starts in 2008 is so much worse than the CMHC’s forecast 214,300. The reason I ask is that CMHC has been wrong about the direction of housing starts in 2004, 2005, 2006, 2007. In each of those years the starts sets new records while the CMHC, like this year, predicted a decline.
This record of error makes it clear that the CMHC does not have any special insight into the economic forces affecting the Canadian housing market. In fact, despite the CMHC and Canadata’s forecast, Canadian housing …
