Canadian Real Estate Starts Fall To Nearly A 2 Year Low, Here’s Why You Care

New housing construction is grinding to a halt across Canada. Canada Mortgage and Housing Corporation (CMHC) numbers show a sudden drop in new housing starts in September. The drop sent starts to the lowest levels in nearly two years, and here’s why that’s important for the economy.

Here’s Why You Care About Housing Starts

Housing starts are a leading indicator, and mean a lot more than a change in home prices. Just so we’re on the same page, a leading indicator is one that precedes a major change in the economy, such as a boom or bust. An increase in starts typically leads to lower unemployment, more spending, and a rise in GDP. Starts rising is generally are pretty good for investors, and the economy as a whole.

The opposite is also true. A decline in housing starts can often lead to a rise in unemployment, less spending, and a decline in GDP (a.k.a. a recession). Generally we want to see that people are confident enough in home prices, and their jobs, that they buy new homes. When that stops, it’s a sign that the economy isn’t where it should be. Think of it as a confidence indicator, but way better. Confidence indicators can skew based on the ability of the public to be honest about how they feel. A slowdown in a leading indicator is when the public shows you how they feel, regardless of what they say.

Canadian Housing Starts Fall To The Lowest Level In 2 Years

The number of new housing starts fell to a multi-year low across Canada. CMHC reported 188,683 starts across the country, down from 198,843 in August. September’s number is 13.83% lower than the same month last year. Over the past 5 years we’ve only seen one other decline from August to September, and that was last year.

Canadian Residential Real Estate Starts

The number of new housing starts across Canada, SAAR.

Source: Statistics Canada, Better Dwelling.

Toronto Real Estate Starts Rise

The number of new housing starts rose on both an annual and monthly basis. CMHC reported 42,263 starts at September, up nearly 19.89% from last year. The increase now means nearly 1 in 5 homes started in the country are in Toronto. Impressive, considering Toronto only has 16% of the country’s population.

Toronto Residential Real Estate Starts

The number of new housing starts across Toronto, SAAR.

Source: Statistics Canada, Better Dwelling.

Vancouver Real Estate Starts Fall To Lowest Levels Since 2015

Vancouver starts are rapidly falling in the second half. CMHC reported 14,390 starts in September, a sharp decline from August’s 24,793. This is the fewest starts we’ve seen since February 2015, and with a decline the size of the national drop. The decline follows weakening demand for Vancouver’s pre-construction sales.

Vancouver Residential Real Estate Starts

The number of new housing starts across Vancouver, SAAR.

Source: Statistics Canada, Better Dwelling.

Montreal Real Estate Starts Fall

Montreal real estate starts jumped from the month before, but are still down a huge amount from last year. CMHC reported 27,153 starts in September, up from just 11,847 the month before. The number of starts show a 24.63% decline when compared to the same month last year. Montreal is one of the few markets seeing an uptick in re-sales, but a decline in housing starts.

Montreal Residential Real Estate Starts

The number of new housing starts across Montreal, SAAR.

Source: Statistics Canada, Better Dwelling.

The home building process is dependent on leverage – both the consumer and builder. Rising rates reduce leverage and throttle the amount of capital available. The declines haven’t been around long, but don’t expect them to rise without a sudden change to the rate environment. You probably knew that though, especially if you’re familiar with how the credit cycle impacts real estate.

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  • Timmy 6 years ago

    New projects are also failing due to pricing out the project at all-time lows. Apparently not even developers expected interest rates to rise. 🤦‍♂️

    • Mike 6 years ago

      The same company that cancelled the project in Vaughan is looking to launch another project btw.

      • Michael Thomas 6 years ago

        Almost half of all condos are being bought by investors, and a good portion are willing to accept negative cashflow. The cancellation of a lot of new projects is going to be a good thing, and hopefully developers start building more purpose built rentals once land values correct.

        • SUMSKILLZ 6 years ago

          The breakdown of seat-of-your-pants investors to solid investors (paid in full up front) is very much unknown. The only condo investors I know personally, paid 100% up front, have no mortgage on their investment properties, don’t have negative cash flow. Its quite the opposite in today’s rental marketplace.

          • MH 6 years ago

            Given the stratospheric debt levels by any measure one can think of, this breakdown is very much known to anyone who is willing to know.

          • Contrarian 6 years ago

            You described my situation. Bought condo in March 2018, when prices were a bit down, for cash, no mortgage. Sold house in August 2018, when prices were a bit up, for 50% over list.

            Even when interest rates increase, everyone needs a place to live. If housing starts decline, rents and residence prices increase because of scarcity and demand.

  • Quan 6 years ago

    Capital controls hitting Vancouver hard. Starting to see new developments advertised in Vancouver for once, which is strange.

  • SUMSKILLZ 6 years ago

    All I see in my neck of the woods 40 km north of Toronto is forests being cut, land being leveled, utilities going in. They’re still building as fast as in 2017. Lots of dirt on the move still.

    • Troy Illet 6 years ago

      They’re also still advocating for more supply, even though they can’t sell the supply they’re slinging now without going overseas and discounting it. Watch for the Board of Trade conference today, they’ll release something that says Toronto doesn’t have enough housing! Time to sell of city land as a cheap asset.

  • Grizzly Gus 6 years ago

    But I thought builders wanted to lower prices for us by building more supply!?

    • mm 6 years ago

      Ha ha ha. 🙂 This is exactly why I shake my head every time I hear the silly supply narrative. Spot on Mr. GG.

  • Grizzly Gus 6 years ago

    Love the River Rock reference.

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