CMHC says housing starts pace drops amid high interest rates

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Pace of housing starts down 11% which is seen as further drag on GDP

Released April 19, 2023 • Last updated on April 19, 2023 • 3 minutes read

According to CMHC, the seasonally adjusted annual rate of housing starts fell to 213,865 units in March from 240,927 units in February. According to CMHC, the seasonally adjusted annual rate of housing starts fell to 213,865 units in March from 240,927 units in February. Photo by Postmedia

The pace of housing starts in Canada slowed 11 percent in March as high interest rates continued to make conditions difficult for developers, according to the latest data from the Canada Mortgage and Housing Corporation.

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The CMHC said on April 19 that the seasonally adjusted annual launch rate fell to 213,865 units in March from 240,927 units in February. The March figure was well below the consensus estimate of 237,000 and comes as the country is already facing “historically” low inventories, the agency said.

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CMHC Chief Economist Bob Dugan said the pace of housing starts and the trend appear to be returning to pre-pandemic levels.

“With persistently high interest rates, it remains a challenge for developers and homebuilders to get projects off the ground,” he said in a press release.

While a modest drop in house prices in most markets after interest rate hikes in 2022 prompted some developers to be more cautious about starting new condominium projects, low vacancy rates and rising rents sparked interest in purpose-built rental housing in every major city except Toronto, the March report said.

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However, the CMHC said the full impact of rate hikes had not yet been reflected in recent reports.

“Some projects could become unviable at current financing rates, or mortgage financing may become more difficult to obtain,” said Eric Bond, real estate market analyst at CMHC.

The six-month average pace of housing starts in March for all areas in Canada fell 6 percent to 240,669 units from 254,658 units in February, the lowest since late 2020.

CIBC economist Andrew Grantham said the slowdown in launches across the country suggested “little reason to expect a big rebound next month”.

“As population growth accelerates and demand for housing rises, housing construction appears to be slowing under the weight of higher interest rates,” Grantham wrote in a note.

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Even after home sales stabilize, the slowdown in residential construction will keep residential investment weighing on Canada’s gross domestic product, he said.

Regionally, the declines were broad-based, as city foundations were lower in eight out of 10 provinces, TD economist Rishi Sondhi said.

Vancouver saw total housing starts increase 98 percent in March due to more than doubling the number of multi-unit housing starts compared to February.

Toronto launches were down 26 percent, while Montreal launches were down 12 percent.

The decline in March was concentrated in the single-family housing sector, with urban housing starts falling 16 percent month-on-month while multi-family housing starts rose 11 percent to over 151,000 units.

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The slowdown in March comes as the country is already grappling with a historically low inventory of new homes.

“While housing starts remained strong in 2022, new supply was not enough to keep up with demand,” the agency said in a separate semi-annual report on housing supply, also released April 19.

Residential construction growth was mixed in Canada’s six largest centers in 2022, the CMHC said. Housing starts increased in Toronto, Calgary, Edmonton and Ottawa while housing starts decreased in Montréal. The starts in Vancouver remained unchanged.

In the case of Toronto and Montreal, stocks of new homes ready for purchase haven’t been this low since the 1990s, Bond said. He said inventory is particularly low for semi-detached and terraced units, which are typically the lower-priced housing options in these cities.

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“Low inventories mean that households in our major cities may have more difficulty accessing housing that suits their needs,” Bond said.

The agency said most construction in 2022 was in low-end neighborhoods, with the exception of residential construction, which saw a big increase in Canada’s six. largest centers. Apartments accounted for over 70 percent of all launches in Toronto, Vancouver and Montréal.

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Bank of Montreal chief economist Robert Kavcic said volatile weather has likely impacted activity in recent months, and a broader look at Canadian housing construction shows activity slowing significantly from very high levels.

“Nevertheless, given relentless population growth and millennia-old household formation, we continue to see a bottom for housing construction that isn’t too far off recent, more subdued levels,” he wrote.

If construction continues to slow, Kavcic says the market can expect tight supply relative to demographic growth and a housing mix with lots of condos but few singles, which wouldn’t meet demographic needs.

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