Housing Markets in the U.S. and Canada have Mud in their Cuffs

May 21, 2015

In this article, I’ll be picking highlights from the latest data releases on housing starts and existing home sales, of both the single-family and multiple-unit variety, in the U.S. and Canada.

2015 21 US and Canada Housing Graphic

In Canada, total new home starts in April were 182,000 units seasonally adjusted and annualized (SAAR), which is just about where most economists would like to see them – neither so high that they’re perpetuating an unrealistic ‘bubble’, nor so low that they threaten an imminent ‘bust’.

(A figure over 200,000 units is a strong performance for Canadian housing starts; below 175,000 verges on the weak.)

On average, through the first four months of this year, Canadian home groundbreakings have been -2.2% when compared with the same January to April period of last year. This information is derived from Canada Mortgage and Housing Corporation (CMHC) statistics.

The bellwether Toronto condo market in the latest month, at 2,387 units (not seasonally adjusted or annualized), was -26.4% month to month (when it might have been headed upwards due to improving weather) and -1.4% year over year. Year to date, though, it remained significantly buoyant, at +15.7%.

Multi-unit starts year to date in Montreal are -41.2% and in Vancouver, they are +6.0%. But the surprise among all Canadian cities with respect to mainly high-rise residential starts is Edmonton, +183%. It seems doubtful this degree of strength will last, given the blows the Alberta economy is suffering on account of low energy prices. In the province’s other major city, Calgary, the volume of multi-unit starts is -37%.

The latest level (April 2015) of total housing starts in the U.S., at 1.135 million units annualized − as set out in a joint press release from the Census Bureau and the Department of Housing and Urban Development (HUD) – is the best monthly number in more than seven years, dating back to November 2007 (1.197 million units annualized).

Just the same, it remains far short of the previous peak level of 2.273 million units achieved in January, 2006. In fact, to provide perspective, the present 1.135 million units would need to almost exactly double to reach the earlier all-time high.  

But that’s quibbling and it’s best to take good news where you can find it. U.S. new home starts are gradually rising.

U.S. total unit starts through April of this year have been +5.7% compared with the same stretch of time in 2014.

U.S. single-family starts have been +8.0% so far in 2015 while the improvement in multi-unit starts has trailed, at +1.5%. This marks a reversal of pattern. During the past four years, 2011 to 2014 inclusive, the percentage-change improvement in the multi-unit market was vastly superior to what was occurring in the singles section.  

Regionally, the West has been experiencing the sharpest upturn in total starts through April of this year, +12.4%, versus the same time frame last year, followed by the South, +5.6%, and Midwest, +3.8%.

The unit-level of starts on average, in the Northeast Region has been lower, -3.1%.

Let’s shift now to the larger – at least according to number-of-units (i.e., by a factor as much as four or five times as great) − existing homes market. Are employment and earnings gains having the desired effect of spurring on browsing and buying activity? 

As calculated by the National Association of Realtors (NAR), the latest (March 2015) monthly level of U.S. existing home sales was 5.19 million units (SAAR), a gain of 6.1% versus a year ago.

But that, too, is well below the all-time peak of 7.0 million units reached in 2005.

To help determine the hottest residential real estate markets in the U.S., there is abundant and timely ‘median’ (i.e., half the observation points are higher and half are lower) selling price data from the NAR.

In what follows, I’ve concentrated on only those metro statistical areas (MSAs) where the latest median single-family existing-homes price is close to or above the figure for the nation as a whole, $205,000.

Adopting such a cut-off point eliminates cities that may be experiencing stunning price gains, but where the jump may be primarily due to an opening level (i.e., the denominator) that was exceptionally low (e.g., Mobile, Alabama, +16.8% from $104,900 in Q1 2014 to $122,500 in Q1 2015).

After such a vetting, there are a dozen standouts. The first six are: (1) Charlotte-Gastonia-Concord, North Carolina (+17.7% to reach $197,000);  (2) Reno-Sparks, Nevada (+17.6%; $269,000); (3) Denver-Aurora, Colorado (+17.2%; $338,000); (4) Salem, south of Portland, Oregon (+15.0%; $194,000); (5) Raleigh-Cary, North Carolina (+13.3%; $219,000); and (6) Sarasota-Bradenton-Venice, Florida (+12.5%; $238,000).

The next tier of six is comprised of: (7) Cape Coral-Fort Myers, Florida (+12.4%; $208,000); (8) Manchester-Nashua, New Hampshire (+11.5%; $237,400); (9) San Jose-Sunnyvale-Santa Clara, California (+11.4%; $900,000); (10) Minneapolis-St. Paul-Bloomington, Minnesota (+11.3%; $209,000); (11) Austin-Round Rock, Texas (+10.2%; $249,000); and (12) San Francisco-Oakland-Fremont, California (+10.1%; $748,000).

There were five cities in the U.S. where the median selling price of an existing home in this year’s first quarter exceeded half a million dollars: San Jose-Sunnyvale-Santa Clara, California ($900,000); San Francisco-Oakland-Fremont, California ($748,000); Honolulu, Hawaii ($699,000); Anaheim-Santa Ana-Irvine, California ($686,000); and San Diego-Carlsbad-San Marcos, California ($510,000).

Readers will notice that cities in California dominate the ‘luxury-priced’ roster. The only other state with representation is Hawaii.

As for some of the other major MSAs in the U.S., their Q1 2015 versus Q1 2014 existing-home resale price performances were as follows: Dallas (+10.1% to reach $193,000); Chicago (+8.8%; $193,000); Houston (+8.5%; $199,000); Los Angeles (+7.0%; $435,000); Phoenix (+6.1%; $206,000); Miami (+3.9%; $269,000); Seattle (+3.7%; $352,000); Boston (+3.1%; $375,000); Washington (+2.5%; $368,000); and Philadelphia (+1.5%; $205,000).

Atlanta has seen a nice uplift in its median single-family resale price (+11.3% to reach $158,000), but the market segment in which the city has really excelled – placing it at the forefront nationally − has been ‘apartments, condos and co-ops’ (+28.4% year over year in Q1 2015 to reach $147,000).

Another city with a headline-generating increase in apartment, condo and co-op resale prices has been Chicago (+17.9% to reach $164,000).

Also, it’s encouraging to note the improvement in Las Vegas (+12.2%, but still reaching only $106,000), after the depths of despair that were realized in that locale during and immediately following the recession.

For the existing-homes market north of the border, an excellent source of data is the interactive National Average Price Map provided at the website of the Canadian Real Estate Association (CREA).

(Readers should be aware that ‘averages’, because they can be inordinately influenced by a limited number of extremely high values, tend to skew a little higher than ‘medians’.)

In April 2015, the average Canada-wide resale home price was +9.5% year over year, reaching $449,000 CAD across all market segments (i.e., singles and multiples).

There are six Census Metropolitan Areas (CMAs) in Canada with populations of one million or more each. Their resale housing performances in April were: (1) Vancouver (+12.2% to reach $899,000 CAD); (2) Toronto (+10.0%; $636,000); (3) Edmonton (+3.1%; $377,000); (4) Montreal (+2.6%; $334,000); (5) Ottawa (+2.3%; $383,000); and (6) Calgary (-0.5%; $455,000).    

It seems pretty clear that there are three cities in the U.S. and Canada with existing housing stock that is ‘Oh-my-gosh!’ pricey: San Jose ($900,000 USD), Vancouver ($899,000 CAD); and San Francisco ($748,000 USD). Vancouver ($750,000 USD) remains in this select grouping even after account is taken of the difference in value between the U.S. and Canadian dollars.

At the opposite end of the spectrum, a listing of major U.S. cities with low-priced residential real estate includes Cleveland ($106,000 USD) and Cincinnati ($135,000) in Ohio; Buffalo, N.Y. ($117,000); Wichita, Kansas ($126,000) and St. Louis, Missouri ($135,000).

A similar catalogue for Canada features a couple of urban centers on the Atlantic Coast: Saint John ($161,000 CAD) and Fredericton ($200,000) in New Brunswick.  

Several cities in both countries immediately come to mind as warranting close observation for one specific reason. Their resale markets may be in jeopardy due to the negative effects the sharp drop in world oil prices is having on local business activity and public sector finances.

Most prominent among these are Houston and Dallas in the oil-gusher state of Texas and Edmonton and Calgary in the energy-rich province of Alberta.

According to many U.S. housing market analysts, buyer enthusiasm for residential real estate is currently being constrained by a low inventory of properties for sale.

Moreover, much of this problem is due to a circular argument. The thinking is as follows: if I’m a homeowner contemplating a move-up purchase, I may be reluctant to put my house on the market because I’m not sure of being able to find better accommodation, should I be fortunate enough to sell quickly.

The difficulty in overcoming this mind-set is being exacerbated by the glacier-like pace of improvement in new home construction.

These are the kinds of speed bumps one encounters when a down cycle ends and reverses direction.

In another 12 to 18 months, with ongoing pickups in hiring and earnings, this argument will hardly seem credible as a stumbling block.

It would be good to see the U.S. housing market striding forward more briskly, but for the moment, be aware that it’s a tough slog when a walker has mud in their cuffs.

Canada monthly housing starts
(seasonally adjusted at annual rates)
Canada monthly housing starts
Jan-Apr average 2014 = 180,500 units;
Jan-Apr average 2015 = 176,500 units (-2.2%).
Canada’s Annual Starts:
2010 = 189,930 units (+27.4%);
2011 = 193,950 units (+2.1%);
2012 = 214,827 units (+10.8%);
2013 = 187,923 units (-12.5%);
2014 = 189,329 units (+0.7%).
Data Source: Canada Mortgage and Housing Corporation (CMHC)/Chart: CMD.
U.S. monthly housing starts
U.S. monthly housing starts
Jan-Apr average 2014 = 0.960 million units;
Jan-Apr average 2015 = 1.015 million units (+5.7%).
U.S. Annual Starts:
2010 = 0.587 million units (+6.0%);
2011 = 0.609 million units (+3.7%);
2012 = 0.781 million units (+28.2%);
2013 = 0.925 million units (+18.5%);
2014 = 1.003 million units (+8.4%).
Data source: U.S. Census Bureau (Department of Commerce).
Chart: CMD.
U.S. and Canada monthly housing starts
(seasonally adjusted at annual rates)
U.S. and Canada monthly housing starts
Data source: U.S. Census Bureau (Department of Commerce) and Canada Mortgage and Housing Corp. (CMHC).
Chart: CMD.

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