Homebuilding eases slightly but remains solid in September
- Housing starts maintained their momentum in September, coming in at a healthy 221.2k (annualized) units. On a month-on-month basis, starts were down 2.5% from July's robust 226.9k level.
- Single-detached starts dropped by 8% to 58.6k units during the month. However, they remain above the trough posted earlier in the year. Meanwhile, multi-unit starts were flat at 162.7k units.
- Starts pulled-back the most in Quebec (-12.9k to 40.7k units) in September. Still, the trend remains strong, consistent with robust housing demand, low levels of unabsorbed inventories, and falling rental vacancy rates. Starts picked up slightly in Ontario (+1.2k to 85.7k units), on gains in markets outside of Toronto. This marked the 2nd straight monthly increase. In B.C., starts picked up (+4.5k to 41.2k units) after plunging 28% in August. Homebuilding had been inflated prior to August due to builders pulling forward activity to beat a new development charge in Vancouver.
- In the Prairies, starts increased 3.4% (m/m) in September. Homebuilding increased in Alberta (+2.6k to 32.9k units) and is trending higher from early-2019 lows. In Saskatchewan, starts increased by 0.8k to 3.9k units. That said, new construction remains low on a trend basis, amid relatively weak economic conditions. In Manitoba, new housing construction dropped by 2k to 4.8k units, but has remained reasonably healthy this year.
- In the Atlantic Provinces, starts were slightly higher (+0.2k to 12k units). Homebuilding edged higher in Newfoundland and Labrador (+0.1k to 1.1k units). However, it has been weak in 2019 amid a declining population. Homebuilding was also higher in PEI (+1.0k to 1.9k units) and New Brunswick (+0.3k to 4.5k units) in September. Meanwhile, housing starts dropped in Nova Scotia (-1.3k to 4.5k units) during the month.
Key Implications
- Ho hum – another month, another solid print for homebuilding. September's outturn caps a strong third quarter for new housing construction which, alongside a probable increase in home sales, points to a healthy gain in residential investment.
- Despite mounting economic headwinds, new housing construction continues to hold firm. This is a reflection of several factors, including past gains in pre-construction sales, low mortgage rates, healthy job markets, programs to incent rental construction and rapid population growth. On the latter score, Canada's population expanded at its fastest annual pace in nearly 30 years in in the third quarter.
- Moving forward, we expect the pace of homebuilding to remain above 200k through 2020, contingent on these fundamentals holding up. This view is consistent with residential building permits, which remained elevated in August (the report was also released this morning). The main downside risk to this view is the deteriorating global backdrop.
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