Calgary New Housing Starts Plunge

An atypically flat spring market has contributed to low housing starts in Calgary.

According to data released today by CMHC, July starts in Calgary were down        -43.6% from the previous year.  Broken out, single family starts declined
-15.8% while the multi-family sector was down -73.2%. Year-to-date (Jan-July) total starts were down -28% from 2010.  (Note: CREB’s forecast for 2011 is for SFH starts to increase 7% while multi-family homes are to increase 11% over 2010)

July YoY Starts (click to enlarge) Source: CMHC

Year-To-Date Starts (click to enlarge)

In today’s Calgary Herald,  a new home builder said it was no surprise that starts continue to be low as the region did not experience a typical ‘spring’ market.

“Sales have remained flat if not lower than normal in most areas of the city and in most price ranges,” he said. “Although the typical indicators such as jobs, interest rates have been mostly positive, the confidence or ability to commit to a large purchase has not been there like it has in spring markets of other years.”

He continues: “Another contributing factor may be those who may be ready to ‘cycle’ their home during the typical three to five year period are hamstrung by the prices that they paid for their home during the boom.”

CMHC’s senior market analyst in Calgary said that “competition from the resale market is still impacting new home sales and starts” and that “listings, although down from the previous year, are a bit elevated.”

July Inventory Levels (click to enlarge)

However, CMHC believes the market will strengthen in the coming months:    ”We are looking for housing demand to improve as the year progresses.  Employment growth and migration flows have been improving — two important factors for housing demand. Mortgage rates are also relatively low which will help some prospective homebuyers…With demand factors showing gains, new home construction is expected to improve in the months ahead as the resale market becomes more balanced.”

While CMHC expects Calgary’s market to strengthen, Canada in general is expected to slow according TD.

In a research note released today, TD Economics stated:

There is generally a 4-6 month lag between selling activity and building activity in the Canadian housing market and the run up in home sales late last year has been fueling the recent acceleration in housing construction. Starts are now up 22% from their level at the beginning of the year.

However, going forward, this momentum is unlikely to continue. Home sales have begun to moderate since January, owing to a combination of high household indebtedness and the recent implementation of new mortgage lending rules – in turn, this should pull some of the heat out of homebuilding activity.

All said, the current pace of homebuilding activity is well-beyond the fundamental level of household formation and we expect a slow decline over the next 18 months.

Canada-wide, single family starts were down -11% in July and -19% YTD. The multi-family segment was stronger showing a +16% YTD increase over last year and a +11% increase from July 2010.

Focusing on Alberta housing starts, ATB had this to say:

Housing starts in Alberta have been essentially flat over the last 12 months, averaging only 21,000 per month. That is down from the five-year average of close to 28,000 per month.

The stability in Alberta’s new housing market is consistent with the existing home market in which prices throughout the province have been virtually unchanged over the past year. Where the two markets differ, however, is that the existing home market has stabilized at some fairly strong price levels, whereas housing starts have been stable at a low level.

Alberta’s new housing market may be supported in the coming months with good labour market conditions and favourable mortgage rates. On the other hand, global stock market volatility and plunging oil prices could shake confidence among Alberta’s potential new home buyers. The next few weeks could be pivotal for consumer confidence.

Sources:

• Preliminary Housing Data (CMHC, pdf file)
• Alberta Housing Starts Flatline (ATB Financial)
• Calgary region housing starts fall in July (Calgary Herald)
• Canadian Housing Starts (TD Economics, pdf file)