- Kari Norman
Economist
Canada: October Housing Starts Picked Up Slightly Despite Weak Homebuilder Sentiment
Highlights
- The pace of housing starts in Canada picked up slightly to 240.8k (saar) in October, with increases in both multi-unit and single-family housing. Table 1 below summarizes key data points.
- Our Q3 2024 tracking for real annualized GDP growth of around 1.0% remains below the Bank of Canada’s (BoC) 1.5% gain published in their recent Monetary Policy Report. Looking ahead, we continue to track real GDP growth in Q4 roughly in line with the BoC’s forecast of 2.0%.
Implications
October housing starts picked up slightly to 240.8k, in line with the consensus of economic forecasters, but remained below the year-to-date average of 244k. This was a modest improvement over the past couple of months which, at around 220k in August and September, underperformed economists’ expectations. It’s our view that the increase mainly reflects the volatile month-to-month nature of housing starts, particularly in the multi-unit sector, rather than any real improvement in construction activity.
Multi-unit construction picked up in October but remains below the year-to-date average. While single-unit residential construction comprises a smaller share of new homebuilding, the October print is the highest this year (graph 1). The 12-month moving average of total housing starts has been little changed over the past two years, despite the somewhat volatile nature of multi-unit housing construction on a month-to-month basis. Regionally, home construction picked up in Quebec, Ontario and Alberta. Housing starts pulled back slightly in BC, despite Vancouver seeing the strongest month since March.
The Canadian Home Builders Association’s latest survey External link. found homebuilder sentiment was poor and declining in both single-family (27.4 on a scale of 0 to 100) and multi-residential slated for ownership (28.5) sectors. Builders surveyed indicated that falling interest rates alone will not be sufficient to restore affordability to a level that would materially improve their sales. Indeed, if homebuilder sentiment continues to follow the forecasted path of effective 5-year mortgage rates, there will at best be an even split between those viewing market conditions as "good" and those viewing it as "poor" by the end of 2025 (graph 2). Moreover, nearly 40% reported considering pivoting to rental construction, suggesting that some of the new rental supply supported by recent government incentives may come at the expense of ownership units. The industry continues to face additional persistent headwinds of construction labour shortages and an aging workforce paired with high building materials costs.
Confronted with numerous headwinds to homebuilding in Canada, in addition to those challenges posed by an anticipated slowing in population growth and heighted tariffs proposed by the incoming US administration, we remain of the view that the BoC will reduce its policy rate again in December by 25bps, followed by five more in 2025.