Canadian Housing Starts Edge Higher in September

Canadian housing starts grew sharply in the month of September as the stand alone seasonally adjusted annual rate (SAAR) at 220,617 for the month after a reading of 184,201 in the month of August and the highest reading for almost a year. The data will happily be received by the Bank of Canada on the basis of GDP and financial stability. The 6 month trend projections, the preferred means of measure by the Canada Mortgage and Housing Corporation (CMHC), grew to 199,503 within the month after August’s reading of 196,465. Urban starts experienced a 19.7% rise as rural starts also enjoyed a major increase within the month. There was also a 14.4% rise in single detached starts on the month as multiple occupancy starts also grew by more than 22%.

The rise in Housing for most of this decade have exceeded the market estimates, fed by low interest rates and the flow of people into cities such as Vancouver and Toronto. The boom has also brought record debt loads and taken prices out of reach for many first-time buyers. Finance Minister Bill Morneau last week announced new mortgage restrictions to curb the risks. British Columbia’s average rate of starts over the last 12 months was the highest since the early 1990s, likely in response to surging Vancouver condo prices, according to Bank of Montreal senior economist Robert Kavcic.

The trend “could grow more worrisome in the year ahead given that the current pace of new construction, if sustained, would likely leave excess supply on the market,” he said in a research note.

Housing starts in September gained in every region of Canada except for Ontario, the CMHC report said. Quebec was the strongest with an increase of 33% led by rental apartments for seniors. The housing agency’s chief economist, Bob Dugan, said that type of gain “emphasizes the importance of inventory management.”

Some analysts however believe that the surge in building should cool soon, "Permit figures had suggested a healthy outcome was in the cards, but today's reading outstrips the pace in building intentions by a wide margin, and we would expect to see somewhat of a deceleration in the months ahead," Nick Exarhos, economist at CIBC Capital Markets, said in a research note.

Given Bank of Canada concerns over financial stability, stronger housing starts are a double boost for the central bank with hopes that growth in household debt could start to moderate. The Canadian dollar strengthened slightly after the release with USD/CAD slipping to 1.3205 from 1.3220 as the US currency was also subjected to a wider correction.