Kelowna Real Estate information by Dave Beeson

Housing starts end year on a high note...

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January 15, 2010

Economic update

Canada’s housing starts end 2009 on a high note

ALEX CARRICK

Chief Economist, CanaData

2009 can be split into two time periods when it comes to housing starts, according to the latest report from Canada Mortgage and Housing Corp.: January through July versus August through December.

Seasonally adjusted monthly housing starts (annualized and averaged) in the final five months of the year were one-quarter higher than in the first seven months in Canada’s urban centres.

The singles market (+44.1%) recovered better than the multiples market (+10.1%).

Regionally in the last five months, it was prairie urban starts (+67.7%), followed by B.C. urban starts (+48.9%), that led the way.

However, those large percentage gains were due to the fact that starts in Alberta and B.C. had fallen so dramatically. Ontario (+13.4%), Quebec (+12.6%) and Atlantic region (+9.9%) starts were all higher in tail-end 2009, but not by nearly as much.

In December, national housing starts (175,000 units) were at their highest level all year.

They had been as low as 119,000 units in April. They are expected to settle in around the 170,000-unit level on average throughout 2010.

Job markets appear to be stabilizing and consumer confidence has improved. However, interest rates will be moving higher in the second or third quarter.

Following the lead of resales

Housing starts have been following the lead of sales in the existing homes market, also known as the resale market.

Resales were nothing short of terribly depressed in the first quarter of 2009. But then they rebounded once the buds of spring started appearing and the traditional home-shopping season got underway.

Not coincidentally, it was in April 2009 that the Bank of Canada lowered its target overnight rate to an unprecedented and almost non-existent level of only 0.25%.

The U.S. federal funds rate had been dropped to next to zero earlier, in December 2008.

For the year as a whole in 2009, there was a clear east-west divide, but the boundary line lay not between Ontario and Manitoba but between Ontario and Quebec.

In Quebec and in the Atlantic, housing starts were down (except in P.E.I.), but not by much and well below the national average (-31%). Including Ontario heading west, the percentage declines were much more significant.

Inventory of unsold units

The year-over-year decline in single-family starts (-22.2%) was less than for multi-unit starts (-38.5%).

This is appropriate, given that the inventory of unsold single-family units (+14% versus normal) in the country has now adjusted almost all the way back to where it should be.

On the other hand, the unsold inventory of multiples remains too high by a factor of more than 100%.

There are still high-rise condo projects being initiated in some major cities, such as Toronto. Part of the reason is prime location. Ideal spots in city cores attract empty-nesters who want to change their lifestyles from looking after a yard to easy shopping and going to the theatre.

The record low interest rates are another incentive. Savvy homebuyers know they’re never likely to get a similar opportunity again.

Condo developers are focusing sales campaigns in those two areas.

Then there are the sales to foreign investors.

Currency value plays a role. When someone from the Far East or Middle East invests outside his/her own country, they want to put the money where they can expect an increase in asset value that will not be offset by a decline in the value of the local currency.

Canada has emerged out of the financial crisis with a solid reputation for security and fiscal management. The loonie, due to the nation’s commodity base, is on an ascending path.

New home prices

In a separate report from Statistics Canada, new home prices (-1.4%) in November 2009 were just about even with the same month in 2008. Quebec City (+6.9%), St. John’s, N.L. (+4.1%), Montreal (+1.9%) and Regina (+1.8%) had the largest year-over-year increases.

The sharpest declines were reported in Edmonton (-9.8%), Victoria (-8.4%) and Calgary (-4.2%).

Again, new home prices are tracking what has been happening in resale markets, but with a lag.

Existing home prices have been remarkably strong – as high as +20% on average for some major cities, according to the Canadian Real Estate Association – since the decline in interest rates.

For more articles by Alex Carrick on the Canadian and U.S. economies, please see his market insights. Mr. Carrick also has an economics blog. His lifestyle blog is at www.alexcarrick.com

Canada monthly housing starts (seasonally adjusted at annual rates)

Data source: Canada Housing and Mortgage Corp.| Chart: Reed Construction Data - CanaData

Inventory of completed but unoccupied dwelling units: centres in Canada with populations of 50,000 of more

Data source: Canada Housing and Mortgage Corp.| Chart: Reed Construction Data - CanaData

Per cent change in year-to-date housing starts - ranking of Canada's provinces (Jan.-Dec. 2009 vs. Jan.-Dec. 2008)

Data source: Canada Housing and Mortgage Corp.| Chart: Reed Construction Data - CanaData

Per cent change in year-to-date housing starts - ranking of Canada's cities (Jan.-Dec. 2009 vs. Jan.-Dec. 2008)

Data source: Canada Housing and Mortgage Corp.| Chart: Reed Construction Data - CanaData

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Published Monday, January 18, 2010 6:40 PM by David Beeson