Globe and Mail Update
December 8, 2008 at 10:03 AM EST
Housing starts in Canada fell almost 19 per cent in November from October, driven by a sharp decline in condominium construction, waning demand and tighter credit conditions.
Canada Mortgage and Housing Corp. reported Monday that the seasonally adjusted annual rate of housing starts was 172,000 units in November, down from 211,000 units in October.
The statistics reflect the "new reality" in the home-building market, CMHC's chief economist Bob Dugan said in releasing the report.
Bank economists said the decline was far steeper than had been expected, with the biggest drop on condominium starts, "which fell a whopping 29.1 per cent month over month," Toronto-Dominion Bank economist Charmaine Buskas said in a note to clients.
Bank of Montreal economist Robert Kavcic said the report marked the second month of declines in the condominium sector, with the pace of decline accelerating in November.
"That fits in with the story that we are expecting to see a decline in the condo market in the coming year," Mr. Kavcic said in an interview.
"The demand is starting to wane, with tighter credit conditions and more risk-aversion amongst buyers," he said.
Ms. Buskas said the CMHC report "coincides with our expectation that the Canadian housing market is unwinding."
Still, she added, while the pace of the decline in November might seem quite steep, "it should not be confused with any of the dynamics in the U.S. housing market.
"Instead, the expectation going forward is for an orderly correction in Canadian housing activity consistent with the business cycle," she added.
Mr. Dugan said the number of housing starts in November was "consistent with our forecast, which calls for more moderate activity of 212,000 units this year, and 178,000 units next year."
Pent-up demand has been satisfied, particularly in the condominium sector, he said.
Overall, housing starts in urban areas moderated in all regions of the country, with British Columbia and Ontario particularly hard hit.
Urban starts in November declined to 17,900 units in British Columbia, from 27,900 in October. In Ontario, urban starts fell to 54,700 units from 78,900 in October. Urban starts in Prairie centres moderated to 23,500 from 26,900 and, in Quebec, urban housing starts slipped to 41,100 from 41,300 in October.
"Note that at the beginning of the new millennium, Canada posted strong housing start levels given a pent-up demand that existed then," Mr. Dugan said.
"Over the last few years, this excess demand gradually decreased, and our forecast for 2008 and 2009 reflects this new reality, with housing starts more aligned with long-run demographic demand," Mr. Dugan said.
Mr. Buskas said the dip in November housing starts could be partly attributed to poor weather, "but the primary driver, of course, is retrenchment in demand...
"There was a surprising resilience in housing activity earlier in the year, and so housing starts maintained some firmness earlier on. However, on a year-to-date basis, housing starts in urban areas have decreased by 3.9 per cent as compared to the same period in 2007," Ms. Buskas noted.
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