Housing starts show we're still building condos

To recap:

  • Construction activity throughout Canada climbed 13.8 per cent to an annualized 200,178 units, according to the Canada Mortgage and Housing Corporation. That was well above the consensus expectation for an annualized 178,100 homes and far ahead of April’s 175,922 figure. Also, it was the first time in five months that housing starts rose above the 200,000 mark.
  • Condos led the increase, with construction on new projects up 22 per cent in urban areas. Single homes edged up three per cent, and building activity in rural areas rose 7.6 per cent after declining in April.
  • The building momentum came from Atlantic Canada and Ontario; construction activity was flat in the Prairies; and Quebec and B.C. registered declines, the CMHC said on Monday.

What the analysts say:

  • Construction in the condo sector tends to be quite volatile, so expect the home building surge to be “relatively short lived,” RBC’s David Onyett-Jeffries said in a client note. The bank predicts construction activity will slow down in the second half of 2013 and into 2014.
  • TD’s Dina Ignjatovic also expects the market to cool down. Slow-growing home prices should weight on the pace of housing starts in the coming months. In fact, overbuilding in the last ten years could mean that construction activity might fall below the rate at which Canadians are forming new families, which generally sets the pace of residential building in the long term. This means residential investment won’t contribute much to overall economic growth for the next year or year-and-a-half.
  • Still, May’s robust numbers likely mean that residential investment might not weigh on economic growth in the second quarter of the year as much as it did in the January-to-March period, noted CIBC’s Emanuella Enenajor.