According to today’s press release from Canada Mortgage and Housing Corporation (CMHC), residential starts across the nation rose for the second month in a row in June, to 141,000 units, seasonally adjusted and annualized. This compares with 130,000 units in May and the low point so far in this cycle of 121,000 units in April. To date this year, Canada’s housing starts have averaged 135,000 units. That is -40% versus the first half of last year when annualized housing starts averaged an exceptionally strong 227,000 units

As for the outlook, existing home sales have been performing quite well in some regions and selling an existing home is often a precursor to purchasing a new one. There are several factors that are keeping residential markets, at the top of peoples’ minds. Mortgage rates are at what may be once-in-a-lifetime lows, with an increasing prospect of climbing as longer-term government bond yields move higher. Also, in Ontario, some prospective homebuyers are getting into the market now in order to avoid the price consequences of the blended sales tax, due to be implemented in the summer of 2010. (story continued below)

Data Source: Canada Mortgage and Housing Corporation (CMHC).
Chart: Reed Construction Data - CanaData.

Inventory of Completed But Unoccupied Dwelling Units:
Centres in Canada with Populations of 50,000 or More

The unsold inventory of multiples is too high by 117%; the unsold inventory of singles is too high by 71%.

Data Source: Canada Mortgage and Housing Corporation (CMHC).
Chart: Reed Construction Data - CanaData.

Unsold Inventories are Too High

Before the new home construction market can improve, however, inventories of unsold homes will need to correct sharply. The inventory of unsold singles-and-doubles is adjusting downward, but it is still too high by more than two-thirds. The inventory of unsold multiples is on a steep upward curve and is too excessive by more than double.

Much of the problem for multiples lies in Toronto. That city’s multi-unit starts in June of this year were only half of what they were in June of last year. However, on a month-over-month basis, they were +42%, indicating that the steam in this market has still not been dissipated. Ontario has a 9.4% unemployment rate and the year-over-year change in the number of jobs in the province is -3.3%, just about the most dramatic decline in the country. Other major cities have seen dramatic drops in multi-unit starts so far this year including: Calgary (-92%); Edmonton (-71%); and Vancouver (-70%).

Alarming Drops in British Columbia’s Smaller Cities

On a year-to-date percentage-change basis, this year versus last year, British Columbia (-69%) is having the worst time for housing starts among all the provinces. This results from several factors including a big downward adjustment from a previous speculative binge, resource sector weakness and a labour market that has slipped badly. The year-over-year employment decline in B.C. (-2.6%) has been among the most severe in the nation and the province’s unemployment rate has shot up to 7.6% versus only 4.5% a year ago.

There has been a dramatic drop in housing starts in Vancouver (-67%), but the declines in the rest of the province’s urban centres have been even greater. Compared with the first half of last year, housing starts are -75% in Victoria, -84% in Abbotsford and -91% in Kelowna. The latter city has had almost zero multi-family unit starts to date in 2009.

Some Smaller City Declines

Several smaller cities across the country are notable for their declines in multi-family starts: Barrie, Ontario (-100%); Saskatoon, Saskatchewan (-93%); Oshawa, Ontario (-87%); and Victoria, B.C. (-88%). Two cities in the Atlantic region deserve mention because they are among the few that have maintained housing starts so far this year near last year’s levels: St. John’s Newfoundland (+5%) and Saint John, New Brunswick (-4%). Among the largest population centres in Canada, Ottawa has performed best with only a 19% decline in starts, thanks to stability provided by the federal government and a high-tech sector that is participating in exciting advances even as the economy struggles.

Percent Change in Year-to-Date Housing Starts – Ranking of Canada’s Provinces
(January-June 2009 vs January-June 2008)

Data Source: Canada Mortgage and Housing Corporation (CMHC)(based on actuals rather than seasonally adjusted data.)
Chart: Reed Construction Data - CanaData.

Percent Change in Year-to-Date Housing Starts – Ranking of Canada’s Cities
(January-June 2009 vs January-June 2008)

^*Canada's Census Metropolitan Areas (CMAs) have core populations of 50,000 plus.
The six CMAs in capital letters are the largest cities in Canada by population.

Data Source: Canada Mortgage and Housing Corporation (CMHC) (based on actuals rather than seasonally adjusted data.)
Chart: Reed Construction Data - CanaData.