Every province in Canada posted a housing starts gain for the month of June, according to the latest Canada Mortgage and Housing Corporation data, which may encourage the Bank of Canada to raise its economic outlook, analysts say.
Housing starts climbed to 245,657 in June compared to 196,809 in May, a nearly 25 per cent increase. The surge was largely driven by multi-family homes, coming in at 185,804 annualized — the highest level on record since 1990.
The impressive housing starts numbers, along with the the positive set of data over the past few weeks could encourage the Bank of Canada to raise its economic outlook for the country when it releases its monetary policy report Wednesday.
“June’s strong report adds to the list of indicators confirming that economic growth in the second quarter was likely much stronger than the Bank of Canada had projected in their April Monetary Policy Report,” Rishi Sondhi, an economist at TD Bank, wrote in a note to clients. “We expect to see the Bank revise its near-term growth outlook upward in tomorrow’s Monetary Policy Report.”
Sondhi says June was an impressive month for homebuilding, noting that the upside surprise completed a robust second quarter that saw starts advance 20 per cent quarter-on-quarter.
“Alongside rising home sales, this supports our call for residential investment to post a solid gain in Q2,” the TD analyst said.
The new data comes on the heels of 3.8 per cent wage growth year-on-year for permanent employees. The unemployment rate increased one percentile to 5.5 per cent, but it was from a new multi-decade low of 5.4 per cent in May, according to Statistics Canada data released last week.
Canada’s trade balance also unexpectedly swung to a surplus in May. Exports hit 4.6 per cent led by energy and vehicle exports, while imports grew a paltry 1 per cent, leading to a surplus of $800 million in the month. While the ongoing uncertainty surrounding U.S. trade negotiations could impact trade flows, it was the country’s first surplus since July 2018.
CMHC data shows British Columbia saw the strongest gains, driven by multi-unit housing. The majority of the gains were centered in Vancouver and Richmond, where the year-to-date starts surged 25 per cent.
“The question is, how much of this new supply was investor bought, since it will be coming to completion in an environment where prices are slipping,” said Robert Kavcic, a senior economist at BMO Capital Markets. “If cap rates at the outset weren’t high enough to support positive cash flow (hint: most weren’t), who will hold in an environment where prices are no longer rising as an offset?”
Ontario saw housing starts jump to 65,326 in June, from 48,086 in May, with Toronto at 34,998 during the month, up from 20,193 in May.
Starts across Quebec hit a 12-year high with 56,100 new units. Montreal had the strongest resale price gains. Starts in Atlantic Canada have swelled to a seven-year high, with Prince Edward Island’s 2,200 starts, which, as BMO’s Kavcic noted, is “the quietest housing boom in the country.”
That being said, the starts are moving gradually lower on a trend basis, with the six-month average of 205,800 units well off the near-term peak of late 2017.
“We anticipate some further moderation, as starts move closer to a more fundamentally supported level of around 200,000,” said Sondhi.
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