June 26, 2008
Economy at a Glance - June 27, 2008
Canadian housing starts now level with last year
At 221,000 units annualized, the May 2008 report on housing starts from Canada Mortgage and Housing Corporation (CMHC) shows an increase (+3.3%) versus the month before, but a decline (-6.8%) from May of last year. The overall effect has been to yield an average level of housing starts (227,600 units) through the first five months of this year at almost exactly the same level as during the same period of time last year.
Generally speaking, so far this year, rural starts have fared worse than urban starts; singles have fallen while multiples have made gains; and regionally, parts of the Atlantic Region and Ontario have picked up, while Alberta’s housing market has had the legs knocked out from under it. The latter has mainly happened in Edmonton (-42% year to date), where both singles (-68%) and multiples (-11%) have been cut back.
In a comparison of pluses and minuses for the residential outlook, the latter is made up of a considerably longer list. On the plus side, mortgage rates are low and the economy has continued to maintain healthy job growth, so far.
However, on the downside, consumers have become more cautious about major spending commitments, on account of all the talk about slowdown/recession and the hits that they are taking to discretionary income from high prices, especially for gasoline, but also for food and some other essentials.
Canada’s economy recorded a -0.3% quarter-to-quarter change in real (inflation-adjusted) Gross Domestic Product (GDP) in the January through March period of this year and this will eventually seep down into the labour market. The loonie at parity with the greenback has hit manufacturing hard. The capacity utilization rate in manufacturing has dropped below 80%, with almost all sub-sectors down. For Canadian industry as a whole (79.8%), the operating rate is at a fifteen-year low.
One major demographic shift that drove housing starts in 2006 and 2007 the move to Alberta by workers and their families looking for jobs has finally stalled out. On the other hand, the populations of Saskatchewan and Newfoundland are on the upswing for the first time in many years, due to their strong resource sectors, but both are relatively small markets.
Finally, one might characterize the current period as the pendulum swinging back the other way. Housing starts were exceptionally high in the six years 2002 through 2007, averaging 223,000 units per year. (By way of comparison, they were only 111,000 units in 1995, during a serious demand drought much like the U.S. is experiencing now.) Therefore, pent-up demand, especially from first-time buyers has now been largely satisfied. Plus, the sellers’ market that has prevailed since 2002 has meant a bidding up of house prices in many regions to levels that are somewhat off-putting.
For more articles by Alex Carrick on the Canadian and U.S. economies, visit his blog and Market Insights.
Canada Monthly Housing Starts
(Seasonally Adjusted at Annual Rates)
Data source: Canada Mortgage and Housing Corporation (CMHC).
Chart: Reed Construction Data - CanaData.
