Canada: Housing starts increase in March at the strongest pace since current records began in 1977
April 19, 2021
Housing starts surged to 335,200 units on a seasonally-adjusted annualized rate (SAAR) basis in March according to the Canada Mortgage and Housing Corporation (CMHC), up from February’s 275,567-unit reading. March’s rise was driven by a strong increase in both multi-detached and single-unit urban starts.
Moreover, the six-month average of housing starts in urban areas rose to 273,664 units in March from 252,636 units in February.
The Canadian home-building market started the year on a strong footing, supported by robust demand, low interest rates and relatively strong growth in house prices. Households amassed roughly CAD 180 billion in excess savings in 2020—approximately CAD 5,800 per person—due to significant government income support, constrained spending as a result of lockdown measures and strong gains in asset values, which has likely propelled demand for new builds since the second half of last year. Meanwhile, shifting housing needs due to a spike in remote working, coupled with conventional five-year mortgage rates hovering at near four-year lows, likely further fueled home-building needs in recent months—new mortgages for property purchases increased 33% in 2020 compared to the previous year.
Looking ahead, housing starts should ease from their current record high as demand normalizes due to fading fiscal stimulus and a pickup in household spending on goods and services, in line with the reopening of the economy. Moreover, the Office of the Superintendent of Financial Institutions (OSFI) recently proposed tightening the issuance of uninsured mortgages—which accounted for nearly 75% of the recent rise in overall mortgage issuance—which should temper demand for home-buying, and for housing starts in turn. That being said, stronger household financial positions at the start of the year and recovering global economic activity could push mortgage rates down even further—as the Bank of Canada looks set to keep its target for the overnight rate at an all-time low until at least 2023—which will likely continue to support the construction of new homes going forward.
Commenting on March’s bumper reading, Omar Abdelrahman, an economist at TD Economics, noted:
“For the first quarter overall, starts clocked in at a solid 307.7k units, up from 239.7k units in the fourth quarter of last year. This is consistent with our view calling for residential investment to contribute positively to real GDP growth in the first quarter. While uncertainty remains due to the impacts of the third wave of infections, recently announced restrictions in Ontario are not anticipated to impact residential construction.”
Author: Steven Burke, Economist