CA: Housing Starts

June 8, 2017 07:15 CDT

Consensus Actual Previous
Level 200,000AR 194,663AR 214,098AR

May housing starts declined to an annualized rate of 194,663 units, down from 213,498 units in April. Expectations were for an increase of 200,000. Urban starts dropped 10.2 percent to 178,518 units. Multiple urban starts decreased by 10.8 percent to 118,694 units while single-detached urban starts decreased by 8.9 percent, to 59,824 units. Rural starts were estimated at a seasonally adjusted annual rate of 16,145 units.

The trend measure of housing starts was 214,621 units in May compared to 213,435 units in April. This trend measure is a six-month moving average of the monthly seasonally adjusted annual rates (SAAR) of housing starts.

Starts trended higher in Halifax, Kitchener-Cambridge-Waterloo, Alberta & Saskatchewan and British Columbia. However starts trended lower in Québec. Toronto starts marked the first month that single-detached starts bucked their upward trend since September 2016. This coincides with a noticeable increase in new home listings in the resale market, providing added choice to home buyers, causing less demand to spill over into the new home market. And in Vancouver, despite a slight downward move in May, overall housing starts for Vancouver are on track to exceed 25,000 new homes this year, nearing the record 27,914 starts set in 2016. The decline from April was almost evenly split between a slowdown in starts of ownership apartments (condos) and rental apartments.

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.