Housing Starts Not Bad in September

EditorFamilyLending.ca, Financial Tips, General Interest, Household Budget, Mortgage News, Mortgage Types, Residential Mortgages

September’s housing starts fell less than originally expected says the Canada Mortgage and Housing Corp. Housing data released on Tuesday showed that housing starts fell to a seasonally adjusted annualized rate of 220,215 units last month. This was down from 225,328 units in August, but was still well above the predicted drop to 207,50o, according to poll of analysts from Reuters.

These numbers are well north of what economists state is required to meet the growth rate in household formations. However, many still feel that demand for new homes is primarily being supported by accommodative interest rates. If low mortgage rates were to begin to rise, the tides could quickly shift, causing a correction that would seriously impact the market.

Low Mortgage Rates Sticking Around

Mortgage rates still remain low. Online mortgage brokerage FamilyLending.ca points to rates as low as 2.94 percent on a closed five-year rate. These rates have experts predicting a soft landing for the nation’s overheated market. “Canadian housing starts continue to run at an elevated pace, but momentum cooled somewhat in September and for all of Q3,” BMO Financial Group economist Robert Kavcic wrote in a note to clients. “The gradual cooling will likely persist given the sales slowdown currently taking place in a number of major markets.”

Not surprisingly, Toronto’s condo market shows the most obvious signs of slowing. In Ontario, housing starts were down 18.2 percent from a month ago. The bulk of this decline has been attributed to a 38.2 percent drop in new-home construction in the Toronto area. This rate is more in line with the average pace of activity over the last six months.

Construction Continues in Toronto

While a housing slowdown is on the way, new build projects continue to move forward in Toronto’s core. The nation’s third quarter starts on an annualized basis were 218,000, the best quarterly performance since 2008. David Onyett-Jefferies, an economist with Royal Bank of Cana believes that “the moderation seen in the resale market will gradually spill over into the new-home sector and starts will moderate through the end of this year and into 2013 as the housing market transitions to a more moderate and sustainable path.”

The current pace of construction is simply unsustainable, and not just in urban centres, like Toronto. John Kenward, chief operating officer of the Canadian Home Builders’ Association feels that the market will get “more alignment with projected housing demand” over the coming year.

“In our view, Canada still has overbuilding concerns. The level of household formation does not support the level of construction activity that we are seeing each month,” says Francis Fong, an economist with TD Economics.

“However, given the lower-for-longer interest environment in which we currently find ourselves, we anticipate a slow moderation in both new sales and construction activity towards their long-term trend levels over the next few years,” he said.

Similar Posts:

Sharing is caring!