CanaData’s Latest Housing Starts Forecast: 210,000 Units in 2008
Alex Carrick
In its latest housing starts forecast package (see accompanying tables), CanaData has revised the 2008 total Canada figure up from 200,000 units to 210,000 units. This may still prove to be conservative. According to Canada Mortgage and Housing Corporation (CMHC), housing starts through the first quarter of this year have averaged 246,000 units (seasonally adjusted at an annual rate), which is +9.0 versus the same period last year.
Several Reasons for Caution in the Outlook
However, there are several reasons for the caution in the outlook numbers. Single-family starts in the first quarter were down 11% versus the same period last year. All of the strength was in the multi-family market. While some of this is a price effect − many buyers have opted to switch from expensive singles to cheaper multiples − it is also the result of a lag factor. Condo starts this year in many cases are based on sales last year. Starts were delayed due to shortages of manpower and material. The weakness in singles may well foreshadow an overall pulling back as the year progresses.
Also, existing home sales softened considerably in this year’s first quarter. This may provide a foreshadowing of what is to come as well. Furthermore, anecdotal evidence suggests that more houses are coming on the market and remaining unsold longer. Official figures on listings are way up. The exceptional strength in housing markets during the past six years is bound to come to an end. That’s the nature of cycles.
At Likely Turning Points, Economics Becomes an Art
At likely turning points in key markets, economics can become more of an art than a science. There can be soft landings on the moon and soft landings for overall economic activity, but they are a much rarer breed when it comes to housing starts. The market can turn quickly and sharply.
The reason is because there is a “collective psychology” at play when it comes to residential real estate. Pervasive media coverage and well-educated consumers are up to date on the latest housing trends. At this time, what has been happening south of the border is common knowledge and it is accompanied by concern about seepage into Canada. (U.S. housing starts are down nearly 60% from their peak level and a general economic slowdown/recession is underway.) Plus there are other pressures on family finances, including the high cost of gasoline and other forms of energy. Many people are pausing to reflect on the state of their finances.
Major City Starts are Dominant in their Provinces
The city housing starts forecasts mainly reflect longer-term market shares within their respective provinces. Montréal traditionally accounts for almost 50% of total housing starts in the province of Québec. Toronto is almost always just above or just below 50% of Ontario’s total. Calgary, since 2000, has tended to be a little over one-third of the Alberta market, while Edmonton has accounted for a little less than one-third.
Calgary is coming off an all-time record year for housing starts in 2006. Edmonton, in 2006, had it second-highest starts ever, exceeded only by 1978’s level (17,100 units). Vancouver is the most dominant city relative to its province in the table below, ranging from 55% to 60%. By the way, Winnipeg (not shown) is even more dominant in its province, usually accounting for close to 60% of Manitoba’s total housing starts.
