May’s Jump In Housing Activity Does Not Mark The Onset Of An Uptrend

Canada – In May, housing starts rose to a consensus topping seasonally adjusted annual rate of 200.2K, up 13.8% from the upwardly revised 175.9K pace set in April. The increase was supported in both rural (+7.6%) and urban areas (+14.6%). Urban residential construction was driven primarily by multiple units (+22.2%), though singles added thrust as well (+3%). On a regional basis, urban starts more than doubled in Atlantic Canada (+112%) and sprang 46.4% in Ontario, dwarfing declines in BC (-7.4%), the Prairies (-0.3%) and Quebec (-5.6%). May’s results were stronger than expected, setting overall housing starts on course for an annualized growth rate of 35% in Q2. Thus, residential construction should contribute to Canadian GDP in Q2 for the first time in four quarters. However, while multis are doing some heavy lifting here (+70% annualized after shrinking 62% the quarter before), single starts are set to retreat 0.4% in Q2 after pulling back 17.6% in Q1. Consequently, as singles contribute more to GDP per unit than multis do, the net impact on Q2 GDP should be muted somewhat.

May’s jump in housing activity does not mark the onset of an uptrend. Although real permits for the construction of multiple units were at their top since 2005, Realnet reported unsold new condos (including on presale or under construction) in the GTA struck a record high in April. The surge in starts in the Atlantic Provinces, which occurred in the multiples segment, is not sustainable either. According to the CREA, the ratio of sales to new listings indicates a buyers’ market in New Brunswick and Nova Scotia. Moreover, the latest CMHC stats indicated vacancy rates for rental units were high in Charlottetown (5.7%) and St. John (9.7%). All this suggests residential construction will remain soft in the quarters ahead.

Still in May, the Teranet–National Bank National Composite House Price Index™ climbed 1.1% monthon- month and 2% year-on-year. Though stronger than expected, the monthly increase was not exceptionally large. Over the past 12 years, which include a recession year, increases in May have averaged 1.2%.

Industries operated at 81.1% of their capacity in Q1, compared to 80.5% in the previous quarter.

To Read the Entire Report Please Click on the pdf File Below.