CA: Housing Starts

November 8, 2016 07:15 CST

Consensus Actual Previous Revised
Level 195,000AR 192,928AR 220,617AR 219,363AR

Housing starts retreated to a seasonally adjusted annualized unit rate of 192,928 in October, down from a revised 219,363 units in September. It was below market expectations of an annualized pace of 195,000. Starts were down 12.1 percent on the month and were down 2.4 percent from a year ago. Multiple urban starts typically condos and apartments dropped 15.3 percent to 115,402 units, while single-detached urban starts slid 5.4 percent to 60,729 units.

Building permits declined 7.0 percent in September on the month, making for the biggest drop in eight months. The decline was attributed to lower construction intentions for non-residential buildings, especially in retail complexes and office building plans. However, the total value of residential building permits rose 2.6 percent in September on construction intentions for multi-family dwellings. The non-residential sector fell 22.3 percent, led by a drop in the commercial component.

Released by the Canada Mortgage and Housing Corporation (CMHC), the monthly housing starts data capture the annualised number of new residential buildings that began construction during the previous month. Statistics are provided for urban and rural areas, the former with a population of at least 10,000. CMHC estimates the level of starts in centres with a population of less than 10,000 for each of the three months of the quarter, at the beginning of each quarter. During the last month of the quarter, a survey of these centres is conducted and the estimate revised.

Housing starts are a leading indicator of economic health because building construction produces a wide-reaching ripple effect. This narrow piece of data has a powerful multiplier effect through the economy, and therefore across the markets and your investments. Home builders usually don't start a house unless they are fairly confident it will sell upon or before its completion. Changes in the rate of housing starts tell us a lot about demand for homes and the outlook for the construction industry. Furthermore, each time a new home is started, construction employment rises, and income will be pumped back into the economy.

Once the home is sold, it generates revenues for the home builder and a myriad of consumption opportunities for the buyer. Refrigerators, washers and dryers, furniture, and landscaping are just a few things new home buyers might spend money on, so the economic "ripple effect" can be substantial. Since the economic backdrop is the most pervasive influence on financial markets, housing starts have a direct bearing on stocks, bonds and commodities. In a more specific sense, trends in the housing starts data carry valuable clues for the stocks of home builders, mortgage lenders, and home furnishings companies. Commodity prices such as lumber are also very sensitive to housing industry trends.