Economists unfazed by 20% drop in Canada’s housing starts in September

Silhouette of home construction slows with decline in Canada’s housing starts in September

Homebuilding activities in Canada remain strong despite falling 20% from August, economists said.

According to the latest figures released by Canada Mortgage and Housing Corporation (CMHC), the monthly seasonally adjusted annual rate (SAAR) of housing starts for September across Canada was 208,980 units, down from 261,547 units in August.

New residential construction projects are a key economic indicator as they reflect consumers’ confidence in the economy and the demand for newly built homes. 

September’s decline was driven by a 21% drop in the monthly SAAR of urban starts to 195,909 units. Multiple urban starts fell 27% to 146,005 units, while single-detached urban starts rose 3.4% to 49,904 units.

But the six-month moving average of the monthly SAAR of housing starts that CMHC uses to complement the monthly SAAR of housing starts to account for fluctuations in monthly estimates rose marginally from 212,609 units in August to 214,647 units in September.

Bob Dugan, CMHC’s chief economist, said the national trend in housing starts was largely unchanged in September as high levels of multi-family starts in July and August were largely offset by lower levels in September.

“Multi-family starts have been very volatile in recent months, partly reflecting the impact of COVID-19,” Dugan said, adding that this volatility was particularly evident in Ontario, including Toronto. “We expect national starts to trend lower by the end of 2020 as a result of the negative impact of COVID-19 on economic and housing indicators.”

Claire Fan, an economist with RBC Economics, said broader home demand trends remain strong by historical standards, buoyed by low interest rates and resilient household incomes.

“Average starts from January to September were 1% above the same period in 2019 — despite COVID-19 containment measures that shut down wide swaths of the economy in the spring,” said Fan, noting that permits issuance has stayed strong. “For the near-term, we still expect both new building and resale markets to remain resilient from a combination of ample fiscal and monetary support.”

Rishi Sondhi, an economist with TD Economics, said in his October 8 report that “despite the decline from August’s ultra-strong pace, September marked yet another month of healthy homebuilding activity in Canada.”

The decline in urban starts was broad based as housing starts were down in eight of 10 provinces, Sondhi said. Ontario drove a large share of the national decline, falling by 32% from 115,339 units to 78,716 units.

Homebuilding activity in Quebec fell 13% to 48,035 units, and British Columbia saw a 26% decline to 30,670 units. Housing starts also fell in every Atlantic province except in Nova Scotia, which rose by 88% to 6,027 units.

In the Prairie region, only Alberta’s housing starts went up by 30% to 24,753 units. In contrast, home construction in Saskatchewan and Manitoba fell 37% and 29% respectively.

Sondhi expects housing starts will remain elevated through next year due to gains in past pre-construction sales and low rates “Afterwards, some slowing may take place as softer population growth brought upon by the pandemic weighs on housing demand, and ultimately, homebuilding.”

Jean Lian is Head of Communications and Brand Marketing with HomeLife Realty Services Inc. in Toronto. Contact Jean at marketinghomelife@gmail.com.