Pace of Canadian housing starts up in March
The Canada Mortgage and Housing Corporation (CMHC) reported on Monday that the pace of housing starts picked up in March.
The national housing agency says the seasonally adjusted annual rate of housing starts climbed 15.8% to 192,527 units in March, compared with 166,290 units in February.
Economists on average had expected an annual pace of 196,500, according to Thomson Reuters Eikon.
The reading came as starts of urban multiple-unit projects such as condominiums, apartments and townhouses increased 18.6% to 135,894 units in March. The rate of single-detached urban starts rose 12.1% to 42,139 units.
Rural starts were estimated at a seasonally adjusted annual rate of 14,494 units.
The six-month moving average of the monthly seasonally adjusted annual rate of housing starts was steady at 202,279 in March compared with 202,039 in February.
Building permits down in February led by multi-family units
Statistics Canada reported at the start of the week that Canadian municipalities issued $7.8 billion worth of building permits in February, down 5.7% from the previous month. The decline was largely due to lower construction intentions for multi-family dwellings.
The value of permits for residential buildings declined 8.5% in February to $4.9 billion, the lowest level since April 2017. The decrease was largely the result of lower construction intentions for multi-family dwellings in Ontario and British Columbia. Despite the monthly decline, the value of multi-family permits has shown notable strength over the past year.
Municipalities issued $2.9 billion worth of non-residential building permits in February, edging down 0.5% from the previous month. The decline stemmed from lower values of commercial permits (-$114 million), which posted sharp increases in November and December.
The value of institutional permits rose 11.6%, the first increase in five months. A high-value permit issued for the Qikiqtani Correctional Healing Centre in Nunavut contributed to the gain.
British Columbia issued $1.4 billion of permits in February, down $181 million from January. Lower construction intentions for multi-family dwellings more than offset gains in all other components. The value of permits in the census metropolitan area of Vancouver declined 20.5% to $800 million. This followed three consecutive months where permits were above the $1.0-billion mark.
The value of permits in Saskatchewan was down 34.0% to $108 million, as every component except institutional buildings declined. The decrease partly reflected changes to building energy codes that went into effect in the province on January 1, 2019. The largest decrease was in the single-family dwelling component.
The value of permits for single-family homes in Saskatchewan have been on a general downward trend since 2013. In 2018, the province issued $596 million worth of single-family permits, the lowest value since 2006. The Association of Regina Realtors and the Saskatoon Region Association of Realtors both reported a decrease in the number of home sales in 2018.
There’s a full-fledged housing chill in Vancouver, but it hasn’t reached Toronto, data shows
When it comes to housing markets, Vancouver and Toronto are poles apart. The March update on housing sales suggest signs of some stability in Toronto’s market, where almost the same number of units were sold in March 2019 as in March 2018.
Vancouver presents a different and more dismal picture. The number of transactions in greater Vancouver last month was down 31% from the tally recorded in March 2018. Vancouver has not seen such a lacklustre March since 1986.
Housing advocates and some industry observers had suggested that a decline in housing prices would be a boon for those who had previously been priced out of the market. It was argued that declining prices would bring in a rush of buyers who had waited on the sidelines for years for an opportunity to own a home. The evidence for such a narrative is lacking in Vancouver.
Ashley Smith, president of the Real Estate Board of Greater Vancouver, believes that housing “demand today isn’t aligning with our growing economy and low unemployment rates.” She holds regulatory changes responsible for the declining market trends in the greater Vancouver.
Smith is of the view that the host of government interventions that introduced new transfer taxes and stringent lending regulations have effectively sidelined “potential homebuyers in the short term.”
Garry Bhaura, president of the Toronto Real Estate Board, echoes Smith’s concerns. Bhaura also believes the OSFI-mandated stress test, which requires borrowers to qualify for a higher rate than the contracted mortgage rate, and other regulations have impacted “home buyers’ ability to qualify for a mortgage.”
The MLS Home Price Index composite benchmark price for Vancouver, which compares prices of similar homes over time, was down by 7.7% year-over-year (YOY) in March 2019. The benchmark price for detached homes at $1.43 million was down by 10.5% (YOY). Prices of condominiums and attached homes were also down.
While prices have been dropping in Vancouver, buyers also have a richer set of choices. Compared to March 2018, the number of houses listed for sale was 52% higher in March 2019. The sales-to-listing ratio was 13.5% for all property types and 9.4% for detached homes.
More choice and lower prices should have attracted more buyers. But that’s not what usually happens in real estate markets. When prices fall, potential buyers stay on the sidelines in the hope that prices will drop even further. This reduces demand and puts additional downward pressure on prices resulting in even fewer sales. Remember, sales in March were down 31.4% (YOY) in Vancouver.
Buyers in Vancouver could also be looking at the long-term trends in housing prices. Despite the recent declines, the benchmark prices in Vancouver are up by 61% over five years and 102.5% over 10 years. If housing prices in Vancouver had risen rapidly in the past 10 years, buyers might be expecting the prices to regress further towards the long-term average.
Toronto’s housing market is not posting declines in prices, yet the gains are, at best, modest. Composite benchmark prices in Toronto were up by 2.6% in March (YOY). At the same time, new and active listings were down (YOY) in Toronto.
Toronto’s sales in March also reveal the urban-suburban divide. Save for a small number of townhouses, sales in Toronto proper were down for detached, semi-detached, and condominiums. In comparison, the surrounding 905 suburbs showed resilience as sales were up for all housing types. Also, the average housing prices in Toronto’s suburbs were up for all housing types except detached homes, which were down by 1.2% (YOY).
Interestingly, March sales of homes under $400,000 represented a mere 7.5% of the residential transactions in Toronto, which suggests that the regulatory changes that made lending tighter have been followed by a reduction and not an expansion in the sale of low-priced homes.
The housing forecasts for Canada suggest a march towards recovery in 2019. However, local markets may experience different outcomes, as is seen from a comparison of Toronto and Vancouver. The urban-suburban divide in large urban markets suggests that buyers should focus on local and not national-level trends in their decision-making.
- Source: Special for the Financial Post by Murtaza Haider, associate professor at Ryerson University, & real estate veteran Stephen Moranis.