March housing starts in Canada beat expectations, displaying “unexpected oompf” by rising 5% to 215,600 annualized units from an upwardly-revised 205,300 units in February. Starts have now climbed to the highest level since October 2008.
The Canadian hotspot was Ontario as condos continue to be built like there’s no tomorrow. In fact, multis in Ontario had the strongest quarter in over 20 years.
Alberta saw back-to-back monthly increases, with starts hitting the highest level since March 2008.
In Calgary specifically, single detached home starts increased +55% year-over-year (from 277 to 430), while multis were up +407%. Total housing starts were up 165% from last March, from 403 to 1,069.
Gains were led by Ontario (30.3%), the Prairies (6.4%) and Atlantic Canada (2.7%). Declines were seen in Quebec (-16.3%) and British Columbia (-27.7%).
Will the high building pace seen in some provinces be sustained? TD doesn’t think so:
March’s outperformance should perhaps not be so surprising when we consider the unseasonably warm winter in much of the country, which no doubt pulled some building activity forward in the season. Not to mention the potential for demand to have been spurred on by the renewed mortgage wars amongst major lenders that drove rates to fresh lows. Given the likely influence of warm weather, particularly driving the outsized gain in the multi-starts segment in Ontario, we don’t expect March’s performance to be sustained. We could now see housing start activity somewhat weaker in the second quarter as the weather merely moved planned projects forward.
At least part of the recent strength in starts likely reflects the effect of the warmer than usual winter temperatures that brought construction activity forward. Thus, we expect some modest payback in the coming months, with housing starts expected to moderate to an average of 188,000 for the remainder of 2012.
Scotia is concerned that there may be too many condos being built:
There is a low and falling amount of singles that are unsold, but a higher and rising number of unsold multiple housing units. In fact, the unsold stock of multiple housing units stands at its highest level since the early 1990s although it would be lower (but still rising) in per capita terms today after accounting for population growth since then (see chart).
Where the greatest uncertainty lies, however, is in the sold but unoccupied and not for rent component that rarely receives much attention.
Rental vacancy rates are low, but they don’t capture the shadow inventory of unoccupied condos that threaten to come on to the market should, for instance, the capital carrying cost be shocked and thus threaten a spike in either listings and/or condos for rent. Estimates over the years have been wide ranging, but have conservatively tended to suggest that around a quarter of condos in markets like Toronto are unoccupied.
To view the preliminary housing start data for March 2012, click here
Mike Fotiou is an Associate Broker with First Place Realty and is registered as a Certified Condominium Specialist and Commissioner for Oaths in the Province of Alberta. Whenever you’re ready to buy or sell real estate, please call 403-554-2284 or email at: email@example.com