November Housing Starts at 172,000-unit Level
According to Canada Mortgage and Housing Corporation (CMHC), housing starts in Canada in November sank to a level (172,000 units seasonally adjusted at an annual rate) that has not been seen since late 2001. From January 2002 through October of this year, housing starts had averaged over 220,000 units per month. The November figure is a dramatic decline, but it still pales by comparison with what has been happening in the United States. U.S. starts are now down around the 800,000-unit level, which translates to a Canadian equivalency figure of about only 80,000 units.

The Pockets of Weakness
Analysts have been expecting Canada's housing starts to fall for some time. The pent-up demand that developed in the 1990s − when starts troughed at 111,000 units for all of 1995 − has been satisfied. Demographic shifts within the country have settled down. The move-up market has been put on hold due to recession and worries about employment and income. For the same reasons, first-time homebuyers have other economic concerns on their minds and are choosing to continue living with family or go on renting.

Unsold Inventory Levels Climb
Inventory levels of unsold properties are accumulating. The inventory of unsold multiples is now too high, versus long-term equilibrium, by about 80%. The excess inventory of singles and semis is too high by two-thirds. In a market downturn, this problem can quickly become more serious than it first appears. The reason is due to the sales rate. Once the monthly sales rate starts to fall, then the number-of-months inventory figure climbs, even if there is no change in the unsold stock. That's why the U.S. now has an unsold housing inventory that stretches out for a year, based on current low sales results.

Some Regional Housing Markets Show the Strain
Two of the more interesting regional numbers among CMHC's November housing starts pertain to the multiples markets in Toronto and Calgary. Those two centres have accounted for the nationwide strength in multiples (+11%) so far this year. Toronto is +61% year to date and Calgary is +26%. However, in the individual month of November, Toronto multiple-unit starts declined by nearly one-quarter versus their average through all of the earlier months of this year. In Calgary, the November multiples change was an even more dramatic two-thirds drop.

Canada's Condos are still Relatively Inexpensive
The market may have finally turned down for condominium demand. Something to keep in mind, however, is the fact that the recent decline in value of the loonie will make Canadian property more attractive for wealthy buyers from Asia and the Middle East. Compared with other major cities around the world, Canadian condo prices may now be even more of a bargain.

Alberta's overall decline (-34%) this year is partly due to a weaker singles market in Calgary (-44% year to date), but mainly due to the fallout from an across-the-board collapse in Edmonton, where singles are -67% and multiples are -44%. Year-to-date total housing starts in the other most populous cities in the country are +11% in Ottawa-Gatineau and -5% in both Montréal and Vancouver.

Factors to Backstop the Decline in Demand
There are factors that will backstop the slide in the new home market. Affordability is improving, both in terms of lower prices and low mortgage rates. Immigration into Canada remains high, necessitating new accommodation. Also, there is ongoing replacement demand as well as some level of second home demand, for recreational purposes. Overall price declines generally mean a relative shift away from condos back to the singles market, since the latter is now more affordable. And the current downturn in the economy will promote more renting versus ownership.