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Signs of cooling in the housing market grow as starts and permits slip

OTTAWA - Signs of a cooling in the Canadian housing market piled up on Tuesday as both the pace of housing starts and building permits slowed.

Canada Mortgage and Housing Corp. said the pace of housing starts in March slipped to a seasonally adjusted annual rate of 156,823. That was down from 190,639 in February.

The report of a slowdown in housing starts came as Statistics Canada also said municipalities issued building permits worth $6.1 billion in February, down 11.6 per cent from January.

BMO senior economist Robert Kavcic said some of the slowdown was due in part to weather as winter hammered Atlantic Canada one more time, but that doesn't account for all of the move lower.

"They kind of corroborate each other in a sense, that there actually is some cooling going on," he said of the February building permits and March home start numbers.

Kavcic said the numbers were indicative of a the housing market headed for a soft landing.

"We're basically expecting starts to slip down to around 180,000 and stay there for the next couple of years," Kavcic said.

"We're not very bearish like a lot of the calls out there for a big crash in Canadian housing. We're not in that camp, but we are expecting much more subdued activity over the next couple of years than we've seen."

CMHC said the six-month moving average slowed to 184,476 units for last month compared with 191,126 in February, the first time it has dipped below 190,000 in six months.

The agency said there were 10,781 actual starts in the month.

On a seasonally adjusted annual basis, urban starts were down 18.8 per cent in March. On the same basis, multiple urban starts decreased by 25.5 per cent while single-detached urban starts segment slipped by 5.4 per cent.

"While the extent of the decline was indeed surprising, major month-to-month swings of this nature are not unprecedented, for multiple unit dwellings," TD Bank economist Connor McDonald said.

"This report highlights the downside risks surrounding homebuilding after a decade-long run-up. Weaker construction activity, along with general fatigue in domestic spending, will inevitably put more pressure on net exports to drive the next stage of Canada's economic recovery."

Meanwhile, the drop in building permits was due in large part to a 31.5 per cent drop in the value of building permits for multi-family homes — such as condos and apartment buildings — to $1.5 billion for February. Plans for single-family homes fell 12 per cent to $2.2 billion.

However, Statistics Canada said the value of institutional building permits increased 14.9 per cent to $673 million, while the industrial component rose 26.8 per cent to $348 million. The value of commercial building permits slipped 0.3 per cent to $1.5 billion.

The signs of a slowdown in new home construction came as real estate brokerage company Royal LePage said the improving weather helped the market perk up in March.

"We are finally seeing the arrival of housing inventory in seasonally appropriate quantities across the nation," said Phil Soper, president and chief executive of Royal LePage.

"When combined with pent-up demand following a particularly long and harsh winter, the stage is set for a robust 2014 spring market. This is particularly good news for buyers, as the home price spikes we have seen in a number of cities should be alleviated by this additional supply."

The company's home price survey found the average price of a home in Canada rising between 2.5 per cent and 5.4 per cent

The average price of a two-storey home increased 5.4 per cent to $428,943 in the quarter, while detached bungalows rose 4.4 per cent year-over-year to $380,765. Standard condominiums posted lower gains of 2.5 per cent to $252,174.

Regionally, Toronto, Winnipeg, Calgary and Edmonton saw the highest price increases, while parts of Atlantic Canada, with much of its inventory still under snow, posted the lowest gains overall.

The Canadian Press


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