Canadian Housing Starts (January 2019)

Housing starts remain healthy in January

• Canadian housing starts fell 2.7% m/m to 208.0k (annualized) units in January. Still, the level remained elevated and follows a solid December print of 213.6k. On a six month moving average basis, starts increased to 208.1k from 207.2k.
• The dip in January starts was concentrated in the single-detached segment, which fell 10.2% to 57.0k units. Multi-family starts were flat, coming in at around 151.0k units.
• Homebuilding was lower in seven of ten provinces. Starts increased in Ontario (+4.4k to 75.2k units), Saskatchewan (+0.2k to 2.7k units) and Alberta (+4.9 to 24.1k units). However, the level of homebuilding remains low in the latter two provinces. On the other hand, starts dropped in B.C. (-7.6k to 43.3k units) after December's strong gain. Homebuilding also pulled back but remained strong in Quebec (-4.4 to 48.3k units). Starts were lower in every Atlantic Province, paced by a 52% month-on-month drop in the volatile PEI market. In Manitoba, starts fell to their lowest level since last May (-0.1k to 6.5k units).

Key Implications

• Despite dipping in January, homebuilding continues to proceed at a strong rate, helping offset the drag from weak resale activity and providing a notable bright spot for the overall economy. What's more, solid permit issuance suggests that starts will remain healthy in the near-term. 
• The multi-family sector is buoying homebuilding as condo starts respond to past gains in pre-construction sales. Rental construction is also strong amid low vacancy rates in key markets, boosted by government programs aimed at adding more affordable stock to the market. 
• We look for housing starts to remain elevated this year. However, starts should ease in 2020, as more recent softness in pre-construction sales and an inventory overhang in the Prairies causes homebuilding to pull back.
• Given the wave of new housing supply set to hit the market in coming years, the absorption of these units will be important. So far so good, with the level of completed and unabsorbed units relatively low. Still, developments on this front bear watching, particularly given a softer demand environment.

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