--Urban Starts At Annual Rate Fall To 164,355 From 177,053 M/M --Decline Marked In Condos Again; CMHC Expects Further Declines
By Courtney Tower
OTTAWA (MNI) - Canada's housing market slowed markedly in October, with housing starts of 183,604 against 197,355 in September, a 7.0% drop led by declines in major urban areas of condominiums, Canada Mortgage and Housing Corporation reported Monday.
The October starts belied market expectations of a rise to a seasonally adjusted annual rate of 200,000 in the month. Instead, starts fell to their lowest level since 157,432 in March 2014.
Starts recorded by the national housing agency dropped nearly 14% to 98,673 for multiple dwellings from 114,539 in September, month-over-month on a seasonally adjusted annual rate (SAAR) basis, and these will continue to decline, CHMC said.
The six-month trend measure of starts showed a slower decline, since there had been an active first half of the year, at 195,707 units in October SAAR versus 197,763 in September.
Still, CMHC Chief Economist Bob Dugan said the trend figures reflect a decline in multiple unit starts, adding, "Given the elevated level of condominium units under construction, our expectation is that condominium starts will continue to trend lower over the coming months."
While condominium and apartment starts seem to be resting, single-family detached homes may be making a modest comeback. They numbered 66,010 SAAR in October versus 62,514 in September.
The October performance follows a Statistics Canada report four days earlier that new building permits issued by municipalities in September rose by 6.1% to C$4.4 billion. Construction intentions for multi-family dwellings rose by 10.8% after a 28.0% decrease in August. The value of permits for single-family dwellings rose by 2.5% following a 2.3% decline the previous month.
Fairly recent reports from international and domestic analysts contain the theme that Canada's housing market is overvalued and due for a correction.
The Bank of Canada and Finance Minister Joe Oliver said that the market continues to sizzle in the hotpot major cities of Greater Toronto, Greater Vancouver, and Calgary, but that elsewhere in Canada the boom has flattened out and in some places in Eastern Canada the market is in decline.
The Bank of Canada cautioned in its October 22 Monetary Policy Report that housing strength, "more robust than anticipated, buoyed by very low mortgage rates," could continue and could further increase historically high household debt in Canada.
For the IMF, "high household debt (163.3% of disposable income) and a still overvalued housing market remain domestic vulnerabilities" and the federal government may have to bring in additional regulation. Fitch also calls for "additional steps over the short term to engineer a soft landing."
The Bank of Canada still sees a soft landing as the most likely outcome for most of Canada outside of the three major city areas. BOC Governor Stephen Poloz added last week that household debt will "evolve constructively." He told the media that he is not concerned about housing overbuilding, saying, "At no point have we gotten into the concern that we are building far too many dwellings in Canada."
Finance Minister Oliver has indicated that one change may be in the offing, that of moving some of the risks in CMHC-backed mortgage lending to the banks and other lenders.
Just last week, Bank of Canada Deputy Governor Lawrence Schembri wrote in a paper that Canada's system of housing finance is resilient and efficient but that "the government has become more exposed to the Canadian housing market via its guarantees on mortgage insurance and mortgage securitization."
Schembri added, "This trend is not sustainable The housing framework needs to be adjusted and strengthened by rebalancing the risk exposures among the participants in this market."
"In particular, measures should be considered to help develop a liquid private label securitization market in Canada."
One can expect that when the Bank of Canada goes so far as to make specific suggestions, these suggestions already are being considered by the federal cabinet.
The Bank of Canada and Poloz concede that low-for-very-long interest rates in Canada are fuelling the high pace of activity thus far but indicate that the more than four-year 1.0% benchmark policy interest rate will remain in place for several quarters to come. Poloz suggests that other means than raising the BOC's key rate - i.e. by federal fiscal policy changes - might be applied instead. Oliver has said that any changes would be applied "gradually."
The decline in urban housing starts in October occurred in all five regions of the country. Declines were led by British Columbia and followed by Quebec, Atlantic Canada, the three Prairie Provinces, and Ontario.
Actual starts in October totalled 16,130, against 17,687 in October a year ago. Single-detached starts rose very slightly year-over-year and multiples dropped notably.
So far this year, January-October, starts were little changed from the period last year - 52,039 vs. 52,739.
--MNI Ottawa Bureau; tel: +1 613-853-9648; email: yndiaye@mni-news.com