Canada: April Homebuilding Rebound Sparks Optimism

Seasonally adjusted housing starts rebounded sharply in April, increasing nearly 17% to just under 280k units. As is typical, most of the month-to-month volatility came from the multi-unit segment. Single family starts edged lower to 36.5k, marking their weakest level on record outside of early pandemic disruptions (graph 1). While April’s headline gain is encouraging, the 6‑month moving average provides a clearer view of underlying momentum by smoothing monthly fluctuations. On this basis, starts rose 3.2% m/m to 256.8k.

Multi-unit construction continues to dominate homebuilding activity in Canada, encompassing both condominium and purpose-built rental units. Building permits, a leading indicator of construction intentions, suggest that a sizeable pipeline remains: the gap between permits and starts is still historically wide, though it has narrowed slightly from its peak a year ago (graph 2).

Regionally, Ontario posted strong gains, with a notable rebound in Toronto following a period of weakness. BC recorded its strongest month in nearly a year, despite softness in Vancouver. Housing starts declined in the province of Quebec in April after an exceptionally strong March, but remained above its 6-month average trend.

Looking ahead, a more inflationary macro backdrop and tighter financial conditions are reinforcing downside risks to housing activity despite near-term policy supports. Upside risks to inflation from elevated oil prices External link. and downside economic risks stemming from the Canada‑United States‑Mexico Agreement (CUSMA) joint review suggest the Bank of Canada is likely to remain cautious and hold policy rates unchanged in the near term. However, higher longer-term bond yields have pushed up borrowing costs, squeezing financing conditions for both buyers of newly built homes and developers. The sharp downturn in presale condominium activity in major markets also raises the risk of a future pullback in multi-unit construction once today’s project pipeline is completed.

Despite these headwinds, several factors should provide some near-term support to homebuilding. Some first-time buyers of newly built properties are expected to return now that the federal GST rebate External link. has come into force. In Ontario, the full HST rebate will be expanded to all eligible buyers of new homes for one year—though the province anticipates only a modest additional 8k starts. More broadly, governments appear increasingly aligned on boosting housing supply. As long as CMHC funding for purpose-built rental construction continues to flow, housing starts should remain above what underlying economic conditions would otherwise imply. The key risk to the outlook for homebuilding remains if low-cost financing becomes less available. The recent population decline External link., driven by an outflow of temporary foreign workers and international students, points to softening rental demand. However, this effect should be partly offset as some previously suppressed households External link. form and the share of permanent renters External link. continues to rise.