215.6K Canadian Housing Starts In March: April 12, 2012

In Canada, an annual rate of 215.6K housing units were started in March, up 10.3K or 5% from the upwardly revised rate of 205.3K units in February, and topping expectations. Urban starts increased 7.8K or 4.2% to 192.1K. Starts in rural areas increased 2.5K or 11.9% to 23.5K. Urban single family starts edged down 1.7K or -2.4% to 68K while multiple starts went up 9.5K or 8.3% to 124.1K. On a regional basis, starts jumped 20.1K in Ontario and increased 3.4K in Alberta and 1.4K in Manitoba, but were virtually unchanged in the Atlantic Provinces and decreased 8.5K in BC, 3.5K in Quebec and 2.8K in Saskatchewan.

Opinion

For a fourth month in a row, starts exceeded 200K in March (top chart). Starts were stronger than expected, but the details are less upbeat. March’s increase is mostly related to a jump in multiple starts in Toronto Census Metropolitan Area, which reached the largest level since July 2005 (middle chart). We doubt that this level of multiple starts in Toronto is sustainable, as it followed a rather soft level in February. Indeed, we think that housing starts in Canada will soon decline below the 200K threshold.

The recent drop in building permits is consistent with that. We expect a respectable level of 190K new dwellings to be started in 2012. This, of course, is inconsistent with the view of those heralding a sudden and profound collapse in the residential market. It simply means that starts will not be a significant contributor to economic growth in 2012. But for the time being, with multiple starts rising almost 20% annualized in Q1 (more than offsetting prior quarter’s drop), new housing construction is likely to contribute to economic growth in that quarter (bottom chart), although the contribution is somewhat limited by the fact that multiple starts contribute less to GDP than single starts, which were little changed from prior quarter.