Canada Stayed Stronger Longer
Unfortunately, housing starts in Canada have finally moved into "sync" with what has been happening in the United States. Canadians should count their blessings that housing starts stayed strong as long as they did − i.e., for much longer than south of the border.

The U.S. plunge has been unfolding over the past three years. It began in February 2006. However, it does seem as though the bottom has finally been reached. The U.S. figure has hovered around 500,000 units annualized for the past four months.

U.S. Pickup by Autumn
Super-low interest rates and bargain prices for distressed and bank-owned homes (due to mortgage foreclosures) are bringing buyers back into the U.S. existing home market. This is a prelude to a pickup in new home construction, which should be evident by autumn.

In Canada, the fall in starts only got underway last November. Until then, the level of monthly new starts was remarkable, exceeding 220,000 units annualized on a regular basis. The subprime mortgage crisis has not taken root to the same degree in Canada as in the U.S. Also, the major lending institutions and oversight agencies in Canada have been operating on a firmer financial basis than across the border.

Canada Monthly Housing Starts
(Seasonally Adjusted at Annual Rates)

Canada's annual starts: 2005 = 225,481 units (-3.4%); 2006 = 227,395 units (+0.8%); 2007 = 228,343 units (+0.4%); 2008 = 211,056 units (-7.6%). Jan-Mar average 2008 = 235,700 units; Jan-Mar average 2009 = 147,700 units (-37.3%).

Data source: Canada Mortgage and Housing Corporation (CMHC).
Chart: Reed Construction Data — CanaData.

U.S. Monthly Housing Starts
(Seasonally Adjusted at Annual Rates)

United States' annual starts: 2005 = 2.068 million units (+5.7%); 2006 = 1.801 million units (-12.9%); 2007 = 1.355 million units (-24.8%); 2008 = 0.906 million units (-33.1%). Jan-Mar 2008 average = 1.053 million units; Jan-Mar 2009 average = 0.523 million units (-50.3%).

Data source: U.S. Census Bureau (Department of Commerce).
Chart: Reed Construction Data — CanaData.

Canada's Starts to be 150,000 Units in 2009
CanaData's latest forecasts of housing starts in Canada foresee considerable weakness this year. The level of nation-wide starts is expected to decline to 150,000 units, versus 211,000 in 2008. The risks to this forecast are probably more on the downside than the upside.

While average starts through the first quarter support the 150,000 figure, it is worrying that some of the regional performances go well beyond the national decline. For example, actual starts in the three western-most provinces − British Columbia, Alberta and Saskatchewan − are all about -70% so far this year.

A Knock-out Punch to the West
The West has finally been "kayoed" by the flip side of the resource sector boom — the commodity price bust. The most pain has been inflicted on Alberta's energy-based economy. Furthermore, government infrastructure spending will not have as big an impact in resource-based regions as in Central Canada and the Atlantic Region. What Alberta needs is a sustained improvement in world oil prices.

Besides upcoming government spending, other factors that will help to support housing starts include the following: (1) still-high levels of net immigration into the country; (2) record-low mortgage rates for qualified borrowers; and (3) improving affordability as home prices adjust to market circumstances. (story continued below)

Source of actuals for both tables: Canada Mortgage and Housing Corporation (CMHC).
Tables, estimates and forecasts: Reed Construction Data - CanaData.

Six Major City Forecasts

Among Canada's six major cities (by population), Ottawa residential construction is continuing to perform relatively better than its compatriots, largely because of the huge federal government presence in the local economy. Toronto is bracing for a big drop in condominium starts.

Edmonton had a huge starts decline last year. It is more likely to be Calgary's turn this year. Vancouver, along with Victoria and the two principal cities in Alberta, was a leader in home price increases in the better times. These needed a correction and that is what is occurring now.

What about 2010 and 2011?
CanaData expects a return to economic growth next year, along with better employment prospects and improving consumer and home-buying confidence. These will raise starts to 160,000 units in 2010. In 2011, the market will improve again, to 180,000 units. As these numbers suggest, it will take several years for starts to climb back above 200,000 units (annualized) on a consistent basis.