Canadian Housing Starts (July 2019)

Housings starts showing sustained strength in July

• Like the weather, Canadian housing starts came in hot in July, posting 222k units (annualized) and were well above market expectations (202k). In month-on-month terms, housing starts declined by 9.6%, but this comes after a 25% m/m surge in June.
• After posting strong gains in June, single-detached and multi-family starts both came down in July. While multis starts dropped by 12.0% m/m, the level was still an elevated 166.1k, near historical highs. On the other hand, singles starts, which declined by 1.6%, remained near multi-year lows at 55.9k.
• All provinces except Ontario saw reversals in July. British Columbia drove the reversal in housing starts, decreasing from 59.9k to 50.9k. Atlantic and Prairie provinces also saw sizeable contractions, with Atlantic provinces losing 6.8k to 10k and Prairie provinces 7.4k to 37.3k in housing starts last month. Bucking the trend, housing starts in Ontario improved by 4.2% (65.2k to 67.9k) in July

Key Implications

• Building activity made a solid start to the third quarter, slightly weakening from the one-off surge observed in June. As expected we saw reversals across most provinces last month, but the decline was more muted than markets anticipated. For most provinces, the level of housing starts stood above their 2019 year-to-date average. These data suggest that while residential investment is slowing, it will remain healthy in Q3.
• With residential investment coming in strong through Q2 and showing signs of robustness heading into Q3, it presents a significant upside risk to the Bank of Canada's near-term outlook. Counterbalancing this positive shock is the increase in uncertainty due to the re-intensification of the U.S.-China trade war. With both a (near-term) stronger domestic economy and a fragile external environment on hand, the Bank of Canada is left in a difficult place in determining the future path of monetary policy, and may choose to hold rates as it continues to assess the impact of deteriorating global conditions on the Canadian economy.  
• On the whole, homebuilding appears to be more robust than previously thought. While residential investment gains are expected to weaken from an extraordinary second quarter, solid fundamentals – increasing population, low interest rates and rising wages – suggest residential investment could see sustained healthy gains through the second half of this year.

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