CA: Housing Starts

April 10, 2017 07:15 CDT

Consensus Actual Previous Revised
Level 212,000AR 253,720AR 210,207AR 214,253AR

March housing starts increased to a seasonally adjusted annual rate of 253,720 units, up from 214,253 units in February. Urban starts increased by 20.2 percent to 235,674 units. Multiple urban starts increased by 30.2 percent to 160,989 units in March, while single-detached urban starts increased by 3.1 percent, to 74,685 units. Rural starts were estimated at a seasonally adjusted annual rate of 18,046 units.

Using the Canada Mortgage and Housing Corporation (CMHC) six month moving average measure, starts trended higher at 211,342 units in March compared to 205,521 units in February. This trend measure is a six-month moving average of the monthly seasonally adjusted annual rates (SAAR) of housing starts.

In Vancouver, housing starts trended lower for the fourth consecutive month but remained above the five-year average. Actual housing starts reached the highest level on record for March since 1972, driven by new apartment construction. Starts activity in Vancouver is also picking up again after an unusually cold winter.

In Toronto, the total starts trend moved higher in March, supported by all housing types. But in Québec the pace of residential construction in the area has slowed down since the beginning of the year. This decline has been mainly due to a decrease in activity in the purpose-built rental housing segment. It should be mentioned that starts of this type reached historically high levels in 2015 and 2016. Consequently, given the significant number of rental apartments currently under construction and the recent increase in the vacancy rate in the area, a downward adjustment was expected.

The Bank of Canada will consider the latest housing data as part of their policy review. The BoC will make its policy announcement on Wednesday.

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.