Canada has a lot of new housing supply coming in the next few months, and it should provide market relief. The CMHC reported new housing starts remain historically elevated in September. BMO Capital Markets wrote to investors, explaining the units under construction have hit a record. Significant supply will hit the market in coming months, completions just take time.
Canada Is Starting Construction On A Lot of New Homes
Canadian housing starts fell from the record high, but still remain at one of the highest levels ever. The seasonally adjusted annual rate (SAAR) of new home starts came in at 300k units for September. It’s lower than the peak, but still one of the highest levels ever. “… a reminder that there is plenty of homebuilding going on in Canada,” said Robert Kavcic, a senior economist at BMO.
Canada Has A Record Number of Units Under Construction
Nearly 500k units are now under construction, emphasized the bank — a new record for units. Even adjusting for population, this is one of the biggest building booms ever. Canada hasn’t seen this type of building boom since the 70s.
A key difference between now and the 70s, is back then they built mostly single-family homes. Now these are largely multi-family units, which take much longer to finish. The supply relief boom that began is still in the pipeline, and is likely to hit all at once.
“… there are now roughly 5x as many multis under construction, versus the 1990s when the two segments were very even. Indeed, the widening lag in completions seen in the chart since the early-2000s coincides with the start of the multi-unit building boom,” said Kavcic.
Adding, “we continue to build pretty much all that we can—and those units take more time to complete than in the past.”
Canada’s Housing Supply Boom Will Reach After Home Prices Fall
High interest rates are throttling buying, as it increases costs and reduces leverage. This is a big deterrent for investors, who have become a significant share of the market. In cities like Toronto, they represent nearly half of new condo buyers. A slight dip in new purchasing is expected to materialize as a result.
One important takeaway— there’s a lot of supply in the pipeline ready to provide relief. It’ll just land after monetary policy brings down home prices. Banks like BMO and RBC have both previously stated the market will be repriced as interest rates rise. After that repricing, a flood of supply may help to keep prices down for some time.