Latest Canadian Housing Market News

Latest building permits and housing starts data show declines; TREB calling for looser mortgage rules

homeconstructionAnnual Pace of Housing Starts Slowed in February

The annual pace of housing starts slowed in February as higher mortgage rates and less stimulative economic conditions helped soften demand, the Canada Mortgage and Housing Corporation (CMHC) reported last Friday.

The housing agency said the seasonally adjusted annual rate of housing starts fell 16.3% to 173,153 units in February compared with 206,809 units the month before.

Economists had expected an annual pace of 205,000, according to Thomson Reuters Eikon.

“As a leading indicator of economic activity, February’s steep decline in housing starts may raise some eyebrows in Ottawa,” Fotios Raptis, senior economist at TD Bank, wrote in a report.

“Although housing starts seemed to be unscathed by the new B-20 regulations that took effect in January 2018, higher borrowing costs and tougher mortgage qualifying conditions may finally be taking a toll on new residential construction.”

The slowing housing starts come as sales of existing homes has also been slowing. The Canadian Real Estate Association reported home sales posted their weakest January since 2015.

Rising mortgage rates and tighter lending rules have been blamed for the slowdown in sales, prompting some to call on the federal government to make changes in the upcoming federal budget to help first-time homebuyers.

CIBC economist Royce Mendes said 2019 is shaping up to be a tougher year for homebuilding.

“Residential investment was downright ugly in the fourth quarter, and the latest reading on housing starts only added to the bad news on Canadian homebuilding,” Mendes wrote.

“Prior to this reading, starts had seen a bit of a renaissance, rising back above 200,000 for four straight months. But the market has been a contending with the effects of higher interest rates and stricter lending standards, and a pace of 200,000 looked unlikely for the year as a whole.”

The overall decline in the pace of housing starts came as the annual rate of urban starts fell 18.0% in February to 155,663 units.

The pace of urban multiple-unit projects such as condominiums, apartments and townhouses fell 20.2% to 116,284 units, while single-detached urban starts dropped 10.6% to 39,379 units.

Rural starts were estimated at a seasonally adjusted annual rate of 17,490 units.

The six-month moving average of the monthly seasonally adjusted annual rates of housing starts was 203,554 in February, down from 207,742 in January.

Building Permits Down 5.5% in January

Canadian municipalities issued $8.4 billion worth of building permits in January, down 5.5% from the record high in December. Lower construction intentions for commercial buildings were responsible for the national decline.

In the non-residential sector, $3.0 billion worth of permits were issued in January, down 15.8% from the previous month. The decrease was the result of lower construction intentions for commercial buildings, down 25.3% to $1.8 billion, following a record high in December.

Meanwhile, increases were reported for both the industrial (+4.8%) and institutional (+0.4%) components.

The gains were mainly attributable to higher construction intentions in Ontario and Quebec.

In the residential sector, the value of building permits increased 1.6% from December to $5.4 billion in January. Both single-family and multi-family dwellings posted gains.

The value of single-family dwelling permits rose 3.1% to $2.0 billion. Four provinces reported increases, led by Ontario, with Quebec a distant second.

In the multi-family dwelling component, building permits issued by municipalities rose 0.7% to $3.3 billion in January, surpassing the record high set in December. This was the fifth consecutive monthly increase. The largest gain was in Ontario, while Quebec reported the largest decline.

In January, municipalities approved the construction of 21,193 new dwellings (+3.5%), consisting of 16,798 multi-family units (+5.1%) and 4,395 single-family units (-2.3%).

Regionally, the total value of building permits fell in five provinces in January, with British Columbia reporting the largest decline. Meanwhile, construction intentions were down in 16 of the 36 census metropolitan areas (CMAs). Vancouver and Montréal recorded the most notable decreases.

In British Columbia, the value of permits fell 24.3% to $1.6 billion, as all components declined. This followed a record high of $2.1 billion in December. The decrease in January was largely the result of lower construction intentions for commercial buildings in the CMA of Vancouver, where the value of permits fell 56.0% to $216 million.

The value of building permits in Quebec declined 10.3% to $1.6 billion. The decrease was mostly attributable to lower construction intentions for multi-family dwellings in the CMA of Montréal, where the value of permits was down 39.5% to $338 million.

Meanwhile, the value of Ontario permits grew 8.6% to $3.4 billion in January. All components, except commercial buildings, reported an increase. The value of building permits for multi-family dwellings in the CMA of Toronto rose 26.5% to $871 million, the second highest value on record.

Toronto Real Estate Board Calls for Looser Mortgage Rules as Monthly Sales Drop Most in a Year

Toronto’s housing market posted its biggest monthly sales decline in a year last month, prompting the city’s realtor board to call for a review of new mortgage rules it says are keeping buyers on the sidelines.

Sales fell 7.7% on a seasonally adjusted basis to 6,212, the largest decline since February 2018, the Toronto Real Estate Board reported last week. Benchmark prices, which adjust for the type of home sold, climbed 0.8% from the prior month to $767,800.

The decline in transactions so far this year extends 2018’s losses which were the worst in a decade, leading to speculation policy makers went too far when they added stress tests to mortgage-lending requirements. The regulator that imposed the rules —the Office of the Superintendent of Financial Institutions — should review them, and amortization periods for federally insured mortgages should be extended to 30 years to give buyers a break, the real estate board said.

“The OSFI mandated mortgage stress test has left some buyers on the sidelines who have struggled to qualify for the type of home they want to buy,” Gurcharan Bhaura, TREB’s president, said in a statement.

“There is a federal budget and election on the horizon. It will be interesting to see what policy measures are announced to help with home ownership affordability.”

Meanwhile, new listings also declined, falling 6.2% from a year earlier to 9,828. The fact new listings fell more than sales suggests conditions became tighter over the past year, supporting price growth, the board said. Average home prices rose 1.6% from a year earlier to $780,397.

The semi-detached segment was the best performer, with average prices rising 9.9% to $832,569 on the year. Condo prices jumped 6.1% to $562,161. Detached homes declined 2.1% to $980, 914.

The realtor board warned of the potential consequences of any further declines, saying the substantial drop in sales compared with the 2016 peak has translated into a “hit to the economy” in the billions of dollars.

“This hit has also translated into lower government revenues and, if sustained, could impact the employment picture as well,” Jason Mercer, the board’s director of market analysis, said in the statement.