Canadian housing market slows

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Check out the latest Canadian housing market data from resales, building permits and housing starts

Home Resales Down in December to Cap Weakest Annual Results Since 2012

Canadian home resalesin December were down for a fourth month in a row, capping the weakest annual sales since 2012, the Canadian Real Estate Association (CREA) reported on Jan. 15.

CREA said home sales fell 2.5% on a month-over-month basis in December, reaching 36,759 on a seasonally adjusted basis. Compared with December 2017, home sales in the final month of 2018 were down 19%.

CREA president Barb Sukkau attributed the drop to a rush of buyers at the end of 2017 ahead of tighter mortgage rules that came into force on Jan. 1, 2018.

“The stress-test has weighed on sales to varying degrees in all Canadian housing markets and will continue to do so this year,” she said in a statement.

CREA said December home sales were down from a year ago in three-quarters of all local markets, led by B.C.’s Lower Mainland, the Okanagan, Calgary, Edmonton, the Greater Toronto Area and Hamilton-Burlington.

Meanwhile, CREA said the national average price for homes sold in December was down 4.9% year-over-year, reaching $472,000.

Excluding Greater Vancouver and the Greater Toronto Area, two of Canada’s most active and expensive markets, the average sale price was just under $375,000.

BMO Capital Markets senior economist Robert Kavcic took the drop in sales and prices to be signs that the market has softened and “the headline-grabbing drama in recent years has largely run its course,” the Canadian Press said.

“It’s probably not a stretch to think that the Canadian housing market has entered into a prolonged period of relative stagnation, where sales are roughly flat and prices no longer outrun inflation,” he wrote in a note to clients.

“This would be a big change compared to conditions we’ve experienced over the past decade, especially in Toronto and Vancouver, but it’s not at all uncommon when looking back through history and across different markets.”

Vancouver, he pointed out, finished the year at the lowest seasonally adjusted level since the Great Recession, leaving buyers in control.

In the Greater Toronto Area, he said, he expected prices to keep up with inflation, but figures it will be a “long while” before March 2017 price levels are seen again.

Kavcic anticipated home sales will struggle to stabilize in Calgary, Edmonton and Regina, but Atlantic markets would see a flattening out over time.

Montreal and Ottawa, he said, are likely “best positioned to keep churning out real home price gains” in 2019.

Looking ahead, TD Bank economist Rishi Sondhi predicted declines seen in December will weigh on residential investment and overall economic growth across all markets.

“Our forecast calls for Canadian sales to basically tread water after 2018’s plunge, as the impact of rising borrowing costs and tighter lending conditions are countered by strong population gains and on-going job growth,” Sondhi said in a note to investors.

“Still, the level of sales will remain relatively low compared to recent years.”

Building Permits Up in November

Statistics Canada reported on Jan. 10 that Canadian municipalities issued $8.3 billion worth of building permits in November, up 2.6% from October. Higher construction intentions for commercial buildings drove most of the gain.

The value of non-residential building permits rose 11.6% to $3.3 billion in November. Construction intentions rose in five provinces, with British Columbia accounting for most of the gain.

In the commercial component, the value of building permits was up 16.8% to $2.1 billion, the highest level since May 2007. The increase was led by higher construction intentions for office buildings in the census metropolitan areas (CMAs) of Vancouver and Québec.

Following three consecutive monthly declines, the value of industrial building permits rose 21.9% to $527 million in November. The increase was mainly attributable to permits for new agricultural buildings.

In the institutional component, the value of permits was down 7.2% to $682 million in November, with Quebec and Newfoundland and Labrador reporting the largest decreases. The decline in the institutional component was largely attributable to fewer high value permits issued for nursing homes compared with the previous month.

In the residential sector, the value of building permits decreased 2.5% to $5.0 billion in November. There were declines in five provinces, most notably Ontario. Meanwhile, the largest gain was in Quebec.

The value of single-family permits fell 5.5% to $2.2 billion in November, after increasing 4.7% the previous month. Ontario reported the largest decline (-8.1% to $930 million)—the lowest reported value since January 2016.

In the multi-family dwelling component, municipalities issued $2.9 billion worth of building permits in November, edging down 0.1% from October. Ontario reported the largest decrease (-$232 million), which was largely offset by a $204 million gain in Quebec.

In November, municipalities approved the construction of 19,378 new dwellings (-3.1%), consisting of 4,725 single-family units (-7.0%) and 14,653 multi-family units (-1.8%).

Regionally, the value of building permits increased in six provinces in November, led by British Columbia and Quebec. Meanwhile, the value of permits rose in 14 of the 36 CMAs, led by Montréal, Vancouver and Calgary.

In British Columbia, the value of permits rose 14.3% to $1.7 billion. The commercial component posted the highest value on record, driven by a $240 million permit for an office building in the CMA of Vancouver.

The value of building permits in Quebec was up 13.9% to $1.8 billion in November, following a decrease of 14.9% the previous month. The increase was largely the result of the issuance of high-value permits for large apartment buildings in the CMA of Montréal and a record high for commercial permits in the CMA of Québec.

In Alberta, the value of building permits increased 10.4% to $1.1 billion. The gain was largely driven by the CMA of Calgary (+$131 million), where every component, except for industrial buildings, reported an increase.

In contrast, the value of building permits in Ontario was down 10.3% to $3.0 billion, following an increase of 9.0% in October. The value of permits in the CMA of Toronto dropped 17.4% to $1.5 billion in November. The decrease in multi-family dwellings (-$225 million) was the main contributor to the decline. Despite the decrease in November, the year-to-date value in the Toronto CMA for multi-family permits ($6.8 billion) has surpassed the total value for 2017 by 20.2%.

Pace of Housing Starts Declines in December

The annual pace of housing starts dropped in December, but remain at an “elevated” level when compared with historical averages according to the latest data from the Canada Mortgage and Housing Corporation (CMHC).

The national housing agency reported the seasonally adjusted annual rate of housing starts in Canada was 213,419 units in December, down 4.9% from 224,349 in November.

The result beat analysts expectations of an annual rate of 205,000, according to projections by Thomson Reuters Eikon.

“Total annual housing starts in 2018 were lower than in 2017, as lower single-detached starts more than offset a slight increase in multi-family starts this year,” said Bob Dugan, CMHC’s chief economist in a statement.

“Nonetheless, total housing starts remain elevated when compared to historical averages.”

CMHC said preliminary figures, which are subject to revision, show that there were a total of 214,020 housing starts in 2018 versus 219,763 in 2017. It had previously predicted that housing starts would range between 192,200 to 203,000 for 2018.

CIBC said the mild winter temperatures made conditions more conducive for homebuilding in December, but noted that housing starts will likely be affected by rising interest rates and tighter mortgage rules.

“But the recent momentum combined with the decent readings on building permits suggest that housing construction could hold up in the near-term,” said CIBC senior economist Royce Mendes in a statement.

Nathan Janzen, senior economist at Royal Bank, agreed that housing starts will likely ease up in 2019 and follow the downward trajectory of home sales. He anticipates housing starts to hover around the 194,000 mark this year.

“That would still be a relatively strong pace of building activity historically and labour markets in Canada still look quite solid,” he wrote in a report.

“Lower oil prices, though, are having an impact on growth in oil-producing regions and questions have emerged about the durability of the global economic expansion. At the same time, slower housing markets and slower growth in household debt has arguably removed some of the urgency for the Bank of Canada to hike interest rates in the very near-term.”

On Jan. 9, the Bank of Canada left its trend-setting interest rate unchanged at 1.75% amid a dimmer economic outlook in the coming months due to a plunging oil price and a slowing housing market.

CMHC reported that the annual pace of urban starts dropped by 5.8% to 194,594 units in December as the annual rate of multiple-unit projects such as condominiums, apartments and townhouses fell 6.8% to 144,728 units.

The pace of single-detached urban starts fell by 2.5% to 49,866 units.

Rural starts were estimated at a seasonally adjusted annual rate of 18,825 units.