Ottawa — Construction of new homes has surged by a surprising eight per cent in June, prompting analysts to say the housing market in Canada has turned the corner and begun recovering.
The annual pace of housing starts rose to 140,700 units in June from 130,300 in May, with the increase in activity spread across different types of buildings, said the national housing agency, Canada Mortgage and Housing Corp.
“The increase in housing starts in June is broadly based, encompassing both the singles and multiples segments,” said Bob Dugan, chief economist at CMHC. “In addition, Western Canada experienced an increase this month.”
The leap in activity was much stronger than anticipated. Analysts had been expecting a small increase, after seeing decreases in nine of the previous 12 months.
While home construction is still 30 per cent less active than a year ago, there are many signs that the bottom has been reached and the housing market has moved on to a slow recovery, said Dawn Desjardins, assistant chief economist at Royal Bank of Canada.
“Housing activity in Canada looks as though it bottomed earlier this year, with sales activity heating up in April and May on the back of improved affordability,” she said in a note to clients.
Lower prices along with low mortgage rates mean homes are significantly more affordable now, she said.
Government incentives included in fiscal stimulus packages may have helped too, said Millan Mulraine, economics strategist at TD Securities, noting that June marked the first back-to-back monthly gain in housing starts since February, 2008.
“The report adds to the growing body of evidence suggesting that the Canadian housing market may perhaps be on the mend.”
Still, with unemployment on the rise, personal incomes deteriorating, and savings increasing, the recovery is not expected to be robust by any means. Starts are 33.9 per cent lower than a year ago, and 48.5 per cent below the peak reached in September 2007.
“We'll take the good news but caution that we are no where close to a housing recovery just yet and could see some volatility ahead,” said economists at Scotia Capital Inc.
New home construction in cities rose 9.5 per cent to an annualized 120,100 units in June, with an 11.3 per cent increase in multiple units such as condominiums, and a 7.3 per cent rise in construction of single homes.
The pick-up in activity was particularly notable in the Prairie provinces, where the pace of urban activity rose 59.4 per cent. British Columbia's housing starts rose 25 per cent, but Ontario saw just a 3.1 per cent increase in activity. Declines were noted in Quebec and the East, with the pace of starts falling 6.3 per cent in Quebec, and 3.9 per cent in Atlantic Canada.
In rural activities, the pace of home building did not change.
Going forward, CMHC said it expects housing starts to improve throughout the rest of the year and the years to come, until the pace of activity edges back up to meet demographic demand for about 175,000 new homes a year.
But for now, even though the real estate market is busy, home construction is far softer now than just a year ago.
Last June, the actual number of new houses starting construction was 20,809. (The 140,700 annualized figure is reached by taking the actual number and assuming that kind of activity continued for the year.) This June, it's just 13,743.
In Ontario, activity in June was half what it was a year earlier. In June 2008, 8,248 actual new homes were started. This June, starts were just 4,440.
“A jump in housing starts to 140,700 units in June is a great improvement from the 13-year low hit in April but at this level, starts are still sitting close levels not seen in nine years,” the Scotia economists said.
First-time buyers, in particular, are taking advantage of low mortgage rates and improved affordability, but there is still a large inventory of unsold homes waiting to be sold, said Adrienne Warren, economist at Bank of Nova Scotia, in a report on real estate trends.
“While no longer acting as a drag on growth, we do not anticipate any significant pickup in construction,” she said. “New home prices are still falling, and builders still have a high level of completed but unsold inventory.”
She found that immigrants are driving the buying activity, closing the home-ownership gap with their Canadian-born neighbours.
In the past, newcomers tended to rent rather than buy. But by 2006, almost 72 per cent of immigrants lived in a home owned by a household member, up from 68 per cent in 2001. For the Canadian-born population, 75 per cent lived in their own home in 2006, up just two percentage points from 2001.
© The Globe and Mail
