Canada’s largest bank sees the real estate market cooling down soon, especially for new homes. RBC Economics has forecast a sharp decline in new housing starts. The “Big Six” bank expects new building to slow down in the second quarter of this year, and taper into Q3 2022. This will result in a sharp fall for new housing starts next year, as investment in the sector slows.
Canadian Housing Starts Grew Over 47%
Over the past few years, Canada has seen an explosion of new housing starts — which peaked last quarter. The seasonally adjusted annual rate (SAAR) of housing starts reached 305,000 in Q1 2021, up 47.34% from a year ago. The bank has forecast this number will drop to 258,000 by Q2 2021, down 15.40% from just a quarter before.
The tapering of new housing starts doesn’t just end there either, it’s expected to taper well into next year. Their forecast sees the decline in starts bottoming at a SAAR of 194,000 in Q3 2022. That works out to a decline of 36.39% from peak activity in the first quarter of this year. It’s an extremely sharp drop.
Canadian Housing Starts Forecast To Fall 22%
The full-year outlook for this number is tapered by the slowing activity later this year. The forecast shows SAAR housing starts at 256,200 for 2021, up 18.22% from the number of starts in 2020. Last year was not exactly a slow year either, with the numbers 3.83% higher than the year before. This year will see very large growth, just not as ambitious as the picture seemed earlier.
Next year they’re forecasting the annual number of new home starts will make a giant decline. They anticipate just 199,500 starts in 2022, a drop of 22.13% from the estimate for this year. Once again, that’s still a huge number. It’s just an abrupt decline that’s going to feel like the recent surge in real estate but in reverse. It will be a substantial slowdown for the sector. Though, it’s after a record year.
RBC forecasting a decline in starts fits the view Desjardins shared this week. Yesterday they dropped a forecast showing a decline in residential investment. More dollars into the economy means fewer dollars for residential investment. At these prices, that means less cash for investing in homes.
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I wonder if the forecasted drop in construction starts will be due to un-affordability rather than an actual decline in demand….?
That is what a drop in demand. Plenty of people able to buy (even as investments), they just don’t want them at these prices.
Like when people say “it’s not a bubble due to a lack of supply.” What’s the model for how much you should pay when there’s a lack of supply? Why is it 2% in places with fast growing populations, and 50% in Canada, when the population slows? That’s a bubble.
It would be nice for RBC and Desjardins explain clearly why they think this slowdown in starts will occur – just doesn’t make sense, if the traditional ‘limited supply’ mantra has any validity.
Why would housing starts slow down / drop moving into the future, given the Canadian federal government’s immigration targets of ~400,000 newcomers each year, for the next 3 years, and the real estate industry keeps pounding the mantra of ‘lack of supply’ is leading to high home prices (and subsequently, rents). What’s the point in the pace of housing starts slowing down?
Could it be developers are doing this to deliberately choke supply, knowing the incoming immigration, in order to provide an excuse to keep prices high / increasing? Or was the real driver for the past several years of demand actually fomented by ‘non-essential’ buyers in the marketplace, instigating unnecessary competition and therefore price increases, and so there really hasn’t been any physical shortage of supply?
Last year CMHC forecasted 18% drop in house prices in 2020. Enough said.