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Canada: Homebuilding Pulls Back But Remains firm in December

Housing starts dropped 12.6% m/m in December to a still-strong 228.3k units. This level was achieved without CMHC conducting their survey in the Kelowna CMA due to COVID-19. Excluding the Kelowna CMA from the growth calculation, starts decreased by a similar 12.2%, and CMHC indicated that the temporary omission of the CMA did not alter the overall trend direction.

Starts of urban single-detached units declined 6.2% in December, while multi-unit starts dropped by 15.5%, partially re-tracing November’s hefty gain.

Starts were lower in 8 of 10 provinces:

  • Manitoba saw a relatively steep decline (-40.5% m/m), while starts were down 16% in both Ontario and Quebec.
  • In the Atlantic Region, starts dipped 6.3%, a very modest retracement from the 128.2% surge recorded in November.
  • Starts were also lower in Saskatchewan (-3.8%), and B.C. (-12.1%), although they increased in Alberta (16.3%).

Key Implications

December’s decline is unsurprising as some pullback from November’s massive level was to be expected. Still, homebuilding ended last year on solid footing, buoyed by gains in past home sales and population growth, a declining inventory of unsold new homes, as well as low interest rates.

For the fourth quarter overall, starts were up slightly, consistent with our view that residential investment will make a positive contribution to fourth quarter economic growth. And, while multi-unit starts receded from their elevated November level, they remain healthy on a trend basis. This bent towards multi-unit construction points to sustained support for residential investment in coming months as these projects generally take longer to complete.

Focus now shifts to January, where, in the battle against the pandemic, Ontario’s government recently shuttered “non-essential” construction activities. Homebuilding should be relatively unscathed by these restrictions, just as in the first wave, when similar measures were implemented. Notably, condo projects are allowed to continue, as can other residential projects for which a permit has been granted. On that note, permit activity in Ontario (and Canada overall) has been solid in recent months. In addition, CMHC will resume surveying in Kelowna this month.

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