Canada is seeing new housing starts begin to fizzle, with November’s growth largely flat. It might present a concern for many, but BMO Capital Markets explained it shouldn’t. In the bank’s latest research note, they argue new housing starts are still very high. A record number of new homes are under construction, and a lot of inventory is about to arrive.
Canadian Housings Starts Remain, But Off Record-Level
Canadian real estate development of new housing has slowed just slightly. Seasonally adjusted annual rate (SAAR) of new housing starts fell 0.2% from October to 264,000 homes. The CMHC-preferred six-month “trend” came in at 274,400 units, down 1 point from last year.
It might seem slow when we’re used to seeing huge growth every month, but starts are still high. They’re off the record high, but still very much above pre-2020-levels. Weak demand for new homes will throttle the numbers to more conservative levels soon.
“We’ll see what 2023 offers, but with demand crumbling, don’t be surprised to see starts pull back,” said Robert Kavcic, a senior economist at BMO.
Adding, “Not to worry, with last year’s 271k tally, we’re on pace for the biggest two-year wave of housing starts on record, even topping the mid-1970s building boom.”
Canada Has Never Seen More Homes Under Construction
During the 70s, Canada experienced one of the most robust building booms in its history. The rate of annual population growth was roughly double today’s current boom. Canada is about to see a lot more housing, with a lot of it currently under construction.
“…on a per-capita basis, we’re going into 2023 with more housing under construction than ever before,” said Kavcic.
BMO shared a chart with institutions showing just how much construction is happening. Nearly 10 homes for every 1,000 people in the country are already being built. It’s fairly close to the annual growth, and with more than one person in a home—it’ll satisfy a lot of demand.
“Now, try to double this…,” he quipped.
The real show begins when people realize those units to be completed won’t appraise at the price they paid and will need a top up. That’s when the panic sets in.
Always the way. Builders monopolize and pressure the market, and then reduce the pressure once the units are already sold. They’ll wait for a collapse in demand and price, then reboot. Look for 2024 to be a big year for land acquisitions.
Market corrections require losers, and they’re almost always investors. god speed mom & pop. You traded in your healthcare and retirement plans for t his housing inflation and drove your kids out of the city. Hope you enjoy it!
Checkout 1989-1990s Japan
Insert “the immigrants will buy them all” argument, because when 1 in 5 GDP dollars is dependent on selling homes, everyone will move here just to sell other people homes. That’s how it works right?
You would think someone would point out the same argument about immigrants sending housing higher happens every bubble, and everyone says “it’s different this time,” but nope. It’s probably different this time. LOL.
Southern California was filled with the “immigrants will always pay to come here” during the 2008 boom. Apparently the narrative that immigrants will always want expensive and overpriced homes didn’t pan out, and this cycle Americans just had to try and rob each other.
Trudeau’s 500,000 a year was meant to enrich the Boomer landlords and the Boomer CEOs paying cheaper labour. Canada is FINISHED as a stable nation at this rate.
I work in construction and a lot of the homes that are being built right now were sold a year or two ago. The builders aren’t selling anything new they’re just trying to fulfill old contracts. We’ve already had customers back away because the appraisal didn’t match the value and the banks won’t give them the extra funds needed.
And I wonder how many shortcuts the builders will take to honor those contracts without inflation eating away at their returns. If they can sneak something past the client, they will.
I shake my head when I read things like this, because I have to wonder: for whom exactly is all this housing being built – meaning, is it only people who live and work in Canada, and are needing a principal residence? And more importantly, it is actually geared toward the demographic and geographic needs of such buyers?
If the ‘demand’ is being driven by something else, and also fuelled by the availability of liquidity, then I’m not certain we’ll see housing drop back down to the realm of median affordability at all. Notwithstanding the BoC’s increase in the overnight rate, I just don’t see any movement on the federal or provincial level to plug the avenues for non-essential demand or excess liquidity (i.e. unearned and/or illegal and/or foreign capital) getting it’s hands on residential real estate. Should our focus really be placed here instead?
Here comes the crash. Buy 10 houses in the USA for every overpriced condo in Canada
I shake my head when I read things like this, because I have to wonder: for whom exactly is all this housing being built – meaning, is it only people who live and work in Canada, and are needing a principal residence? And more importantly, it is actually geared toward the demographic needs of such buyers?
If the ‘demand’ is being driven by something else, and also fuelled by the availability of liquidity, then I’m not certain we’ll see housing drop back down to the realm of median affordability at all. Notwithstanding the BoC’s increase in the overnight rate, I just don’t see any movement on the federal or provincial level to plug the avenues for non-essential demand or excess liquidity (i.e. unearned and/or illegal and/or foreign capital) getting it’s hands on residential real estate. Should our focus really be placed here, instead of trying to ‘build our way’ back to median affordability?