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Canadian Housing Starts for May - Good news for those selling their current homes.
• Housing starts in Canada fell unexpectedly in May to an annual rate of 189,100 units from April’s upwardly revised 201,800 unit tally. May's drop materialized despite unseasonably warm – and construction-friendly – weather in central and eastern Canada.
• Underlying the moderate dip in total starts was a decline in both multiple unit building (-9.5%) and singles (-14.1%). In contrast, in the past four months, single and multiple unit construction activity had been gyrating up and down but in opposing directions.
• On a regional basis, starts were down in most major regions in May. The Prairies led the way with a drop of 21.8%, followed by Quebec and B.C. (-13%) and Ontario (-3%). Only the Atlantic region (+23%) experienced a rise in building activity in the month.
• May’s result marked the first major setback for homebuilding in several months. Prior to May, starts had rallied strongly from a recession low of 112,000 units in April of last year. In the first four months of the year, starts had plateaued at the 200,000 level.
Key Implications
• Today’s data suggest that the rebound in building new homes from last year’s recession is quickly running out of steam. Still, owing in part to April’s solid showing, second-quarter starts are still likely to come in at a solid 190,000-195,000, down only slightly from about 200,000 units in the first quarter.
• In the second half of the year, we expect the number of starts to moderate to the 160,000-170,000 unit
range, which is less than the estimated replacement rate of 180,000 units. The replacement rate is the underlying pace of starts that is required to meet the needs of a growing population and replace those units lost to demolition.
• Part of the coming moderation reflects the impact of the implementation of the harmonized sales tax (HST) in Ontario and Quebec on July 1st, which almost certainly brought some building activity forward to late 2009 and the first half of 2010.
• A bigger culprit, however, is easing price conditions in the broader housing markt, as sales continue to come off the boil and more listings make their way onto the market. Over the next 4-5 quarters, TD Economics anticipates average resale home prices in Canada to decline on the order of 6-7%.
Accordingly, the incentive to feed the market with more units than the replacement rate can support will continue to diminish.
Derek Burleton, Vice President and Deputy Chief Economist
416-982-2514
R.Paul Chadwick
TDCanada Trust
Manager Residential Mortgages
Tel: 905 334 4066
Fax: 905 332 1619
paul.chadwick@td.com
pchadwick.ca
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