- Housing starts edged higher by 1.2% to an annualized 198,300 in October 2013, thereby defying market expectations for a 190,800 reading in the month.
- The increase in overall housing starts reflected increased activity among rural starts (12.9%). A pullback in urban single-unit starts (-1.7%) offset a modest gain in the urban multiple-unit component (0.9%) to keep urban starts steady in the month.
- A 27.2% surge in the multiples component in Ontario coupled with a 1.5% rise in the province’s singles component provided the only source of strength in the urban centres on a national basis. Broad-based weakness was evident for all remaining regions that was led by a decline in the multiples component in British Columbia.
- New home construction in October represented the highest level of activity since May 2013 and marked a 3.2% increase from the third-quarter average to set the pace for the final quarter of 2013. With the Bank of Canada dropping its mild tightening bias last month, favourable borrowing conditions are expected to persist as we approach 2014, which along with six consecutive months of building permits posting more than 200,000 annualized units, raises the prospect for the relatively robust level of new home construction to continue. Under these conditions, the Bank has expressed concern that the risks of a price correction could increase; however, apart from an outsized gain in multiple units in Ontario and a rise in rural starts to retrace earlier declines, moderation was evident across the country. We anticipate that elevated home prices and affordability pressures will increasingly weigh on housing demand and that the recent pick-up in homebuilding activity will ease.
Canadian housing starts rose by 1.2% to a five-month high of 198,300 annualized units in October 2013 from the upwardly revised 6.5% increase in September to 195,900 (initially reported as 193,600). The monthly increase in homebuilding activity comes in contrast to market expectations for a decrease to 190,000 annualized units. The overall gain in October reflected a 12.9% rise in the rural-starts component to 20,800 annualized units, thereby building on the previous month’s 16.0% jump in this component. Urban starts held steady in the month at 177,400 annualized units as a 0.9% gain (to 115,000) in the multiple-unit starts component was entirely offset by a 1.7% drop (to 62,400) in urban single-unit starts.
A 27.2% surge in the multiples-component in Ontario (to 47,300) coupled with a 1.5% rise in the singles-component (to 20,900) provided the only source of strength in the urban components on a national basis. Broad-based weakness was evident for all remaining regions with declines reported in Atlantic Canada (-7.9%), Quebec (-3.7%), the Prairies (-5.8%), and British Columbia (-19.2%), which saw a sharp moderation in the multiples-unit component (-26.4%) to retrace a 22.6% jump in the previous month.
New home construction in October represented the highest level of activity since May 2013 and marked a 3.2% increase from the third–quarter average to set the pace for the final quarter of 2013. With the Bank of Canada dropping its mild tightening bias last month, favourable borrowing conditions are expected to persist as we approach 2014, which along with six consecutive months of building permits posting more than 200,000 annualized units, raises the prospect for the relatively robust level of new home construction to continue. Under these conditions, the Bank has expressed concern that the risks of a price correction could increase; however, apart from an outsized gain in multiple units in Ontario and a rise in rural starts to retrace earlier declines, moderation was evident across the country. We anticipate that elevated home prices and affordability pressures will increasingly weigh on housing demand and that the recent pick-up in homebuilding activity will ease. Our forecast calls for housing starts to drift lower in the next year and finish 2014 at 174,000 annualized units, which would be a level that is more consistent with household formation in Canada.
RBC