March 9, 2010
Economic update
Unsold inventories of singles and multiples go their separate ways
February 2010 housing starts in Canada continued along their remarkable recovery path, according to Canada Mortgage and Housing Corp. (CMHC). The starts level in the latest month was just under 200,000 units, at 196,700 seasonally adjusted and annualized.
That’s the highest figure since the 209,000 units achieved in October 2008 as the recession got underway.
National housing starts a year ago in February 2009 were only 115,000 units. Their low point in the recession occurred two months later in April 2009 at just 112,000 units. Strong existing home sales, record low mortgage rates and house prices that continue to climb in most regions of the country are the factors behind the relatively high level of starts in the most recent months.
From 2002 to 2008, housing starts in Canada averaged 222,000 units annually. In 2009, they were 149,000 units. The last five months have been a surprisingly quick return to better levels.
Sub-sector markets
With only two months to report so far this year, it is a little early to draw too many conclusions about sub-sector markets. However, the pattern regionally seems to be that the West is recording larger percentage gains year over year than the East. Housing starts in the Prairies and in B.C. January to February this year are nearly double what they were January to February of last year.
In the latest month, however, it was Ontario starts (+28.6% month to month) that recorded the largest percentage gain among regions across the country. Toronto starts, which account for more than half of the Ontario market, were +67.0%. The biggest leap for Toronto was in the multiples market, from 515 units in January to 1,739 in February, a more than three-fold increase. The regional figures are not seasonally adjusted and that may account for some of the gain.
Absorption rates and inventories, singles versus multiples
The inventory of unsold single-family units has been adjusted down by developers to just about exactly where it should be (see accompanying chart). However, it is important to keep an eye on the multiples market. What is most interesting – and perplexing – is that the inventory of unsold multiples keeps on climbing. It is now above historical levels by 150% or one-and-a-half times.
The latest absorption rate (i.e., occupied upon completion) for singles and semis is 85%. The comparable figure for row and apartment/condo projects is 70%. Multiples under construction have been adjusted downward by 19% year over year, which is a necessary step to correct the excess inventory problem. But it may not be fast enough. It certainly appears to be the case that some home builders in the high-rise portion of residential construction, if they do not have enough sales drawing power based on location, may end up hurting as the year progresses.
For more articles by Alex Carrick on the Canadian and U.S. economies, please see his market insights. Mr. Carrick also has an economics blog. His personal blog is at www.alexcarrick.com
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 150%
the unsold inventory of singles is too high by only 7%
Data source: Canada Mortgage and Housing Corporation
Chart: Reed Construction Data — CanaData
Canada monthly housing starts
(Seasonally adjusted at annual rates)
Jan-Feb average 2009 = 125,500 units;
Jan-Feb average 2010 = 191,000 units (+52.2%)
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%);
2009 = 149,081 units (-29.4%).
Data source: Canada Mortgage and Housing Corporation
Chart: Reed Construction Data — CanaData
