Calls for "Inventory Management" Rise, Due to Report

The rate of new home starts in September in Canada hit the fastest rate we've seen since 2012. Blowing past expectations, lead by the ongoing strength in condo construction. CMHC said the seasonally adjusted annual rate of housing starts increased to just shy of 231,000 units in September, almost an 8% increase from what we saw in August.

Economists had expected the annual pace of starts in September to come closer to 200K starts based on a poll conducted by Thomson Reuters, BMOs senior economist  called the state change in housing a move from “a controlled simmer to a rolling boil.” They said “First, residential construction looks to be a bigger support than most expected in the second half of the year, which is good news on the growth front, but, second, we probably can't sustain this level of home building activity for long before excess supply concerns start to build.” 

CMHC chief economist believe the strength was mostly due to the launch of some major rental housing projects combined with continued strength in condominium construction.
“As a result, trend activity is now above the projected annual pace of around 190,000 new households. This underscores the continuing need for inventory management to minimize the number of completed but unsold units,”  they said.

By region, we saw starts increased in Quebec, the Prairies, Atlantic Canada and British Columbia, but actually decreased in Ontario.

A TD Bank economist, Diana Petramala, pointed out the strength in new home construction is consistent with what we've seen in demand and prices for homes. “The increased appetite for Canadian housing will likely keep construction elevated through the rest of 2015 and first half of 2016,” she said.‚Äč
“However, with interest rates likely as low as they are likely to get, some of the steam in housing demand will likely fade as pent-up demand becomes exhausted.”

Though this may be a concern, as I pointed out in my earlier post, the debt servicing ratio due to the very affordable interest rates, is still nowhere near previous pre-crash levels. I believe we are likely to see continued strength especially with the need to support the economy becoming more and more apparent at the Federal Levels, as oil continues to flounder. Several of the election promises made will support real estate expansion and rates will likely stay in around these levels for the foreseeable future.

 

**information derived from CHMC and Canadian Real Estate Wealth Reports**

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Sabbir Chawala

Sabbir Chawala

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