Canadian Housing Starts (November 2018)

Housing starts beat expectations for the second consecutive month in November

• Canadian housing starts increased to 215.9k (annualized) units in November, 4.4% higher than the slightly upwardly revised 206.7k level from October. November's pace bested forecasts calling for a modest pullback to 196k. On a trend, six-month moving average basis, starts edged up to 210k units, and marks the first uptick since June.
• Unsurprisingly, November's national gain was concentrated in the volatile multi-family category, which rose 3.9% to 151.6k units. Single-detached starts in urban areas also rose, posting a robust 7.8% gain to 50.5k units, partly reversing October's decline. Rural starts continued to trend lower on a six month moving average basis, reaching a new 35-month low of 14.1k units in November.
• Urban starts were up in 7 of 10 provinces. Atlantic Canada saw a move higher in all regions, particularly in PEI (+1.4k to 2.1k). In central Canada, activity softened, as declines were recorded in Ontario (-7k to 81.6k) and Quebec (-0.42k to 47.3k). Starts in Western Canada were broadly higher, led by an uptick in activity in Manitoba (+2.9k to 9k), Alberta (+8.2k to 26.4k), and British Columbia (+6.7k to 38.9k). Housing starts in Saskatchewan fell -3.9k to 2.9k units, more than reversing October's surge to 6.8k units.

Key Implications

• November housing starts marked the second consecutive month of advance, and is broadly supportive of Canadian residential investment for the fourth quarter.
• On a trend basis, housing starts appear to have troughed, with some upward momentum of late. Given the upward trend in building permits through October, there's a good chance that housing starts will continue to see some further upside in the months ahead for both single and multifamily units.
• Going forward, higher interest rates and affordability constraints in major CMAs (GTA, Greater Vancouver Area) could act to hold the pace of new residential construction below that prior to the B-20 guideline changes. That said, abstracting from temporary negative income shocks in the near-term related to oil industry woes, a steep downturn in homebuilding nationwide appears unlikely. Canada's population is on the rise, medium-term income growth should remain healthy, and most markets are generally not overbuilt.

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