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Even Canadian Housing Starts are Affected by the U.S. Election

11/09/2012 by

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The expectation finally became the reality for total Canadian home starts in October. They dropped to 204,000 units seasonally adjusted and annualized from the previous month’s level of 224,000 units, according to Canada Mortgage and Housing Corporation (CMHC).

Starts in October were at their lowest level since February of this year (also 204,000 units), with the seven months in between averaging 224,000 units.

For the first 10 months of 2012, the monthly average of total Canadian home starts has been 218,200 units, an increase of 12.8% versus the same January to October period of last year.

If home starts stay at 200,000 units in November and December, they will end the year at 215,000 units. The annual figure in 2011 was 194,000 units. 2012 has been a stellar year for Canadian homebuilding.

The multiples-unit market has been the source of most of the action. For centres of 10,000 population and over, multi-unit starts have been +19% year to date. In the single-family segment, there has been little change (+1%).

Multi-unit starts (i.e., mainly condos) are most apparent in the largest cities. Toronto (31,774 units), at nearly one-third of the national total, is the dominant player in this category. Its year-to-date multi-unit starts are +28% versus the same time frame last year.

Montreal (13,694 units) and Vancouver (13,690 units) are virtually tied for second place. The former is -5% year to date while the latter is +15%.

Among the other largest population centres in the country, Calgary’s multi-unit starts of 6,063 units have been +99% year to date; Ottawa-Gatineau’s level of 5,750 units has been +26%; Edmonton’s 5,573 units have been +49%; and Quebec City’s 4,142 units have been+26%.

By the way, Toronto’s multi-unit starts in October were +21% month to month (after a 47% month-to-month drop in September) and -1.8% versus October of last year. The city’s condo-building momentum hasn’t slowed much.

Many of us have been caught up in the recent U.S. election. It’s amazing that approximately $6 billion was spent on campaigning by both parties, the super-PACs and others to achieve a “status quo” result. Barack Obama still resides in the White House, the Republicans control the House and the Democrats are in charge of the Senate.

This doesn’t mean there aren’t important implications for the economy. The philosophical differences between the parties over how to reduce the deficit and lower the nation’s debt burden remain. Some compromise will have to be achieved to avoid two potential catastrophes – (1) the so-called “fiscal cliff” that looms at the end of this year when $600 billion in government stimulus may disappear through automatic spending cuts and tax increases; and (2) a necessary lifting of the debt ceiling above $16.4 trillion early next year if the U.S. doesn’t want to default on its borrowings.

The U.S. economy has been demonstrating a remarkable resiliency lately. It’s important that this not be brought to an abrupt termination. For Canada, it’s still the case that our prospects are highly dependent on how well the U.S. performs. Many jobs and incomes in this country flow from a vibrant American business sector. That means even Canadian housing starts are affected by what happens south of the border.

There are other implications for Canadian new home starts from the U.S. election results. Mitt Romney has expressed his dissatisfaction with the actions of the Federal Reserve since the recession. If he’d been elected President, it was his intention to remove Ben Bernanke as Chairman of the Fed at the end of his term in 2014. 

With Mr. Bernanke’s future now more assured, financial markets can count on a continuation of the Fed’s easy money and low interest rate policy. The U.S. housing market is also benefitting from a central bank program to buy $40 billion per month in mortgage-backed securities. 

It will be difficult for Mark Carney to institute a tighter monetary policy in Canada with the U.S. remaining so lax. Otherwise, the Canadian dollar will rise in value and impede the export sales of our manufacturers. 

Returning to the Canadian new homes scene, there wouldn’t be the overall strength in starts if prices weren’t holding up.

Statistics Canada’s new housing price index (NHPI) increased again in September, by 0.2%. That was a gain similar to what occurred in August. The NHPI has been penciling in a steady upward slope since mid-June, 2009.

Among Canada’s major cities, the largest month-to-month increases in the NHPI were recorded by Toronto (+0.6%), Winnipeg (+0.5%) and a grouping of Saint John, Fredericton and Moncton (also +0.5%).

The largest declines month-to-month were registered on both coasts, with Victoria at -0.4% and St. John’s Newfoundland at -0.2%. Three cities had declines of 0.1% – Halifax, Montreal and Vancouver.

In eight of the 21 urban regions monitored by Statcan, new home prices stayed flat.

The year-over-year change in new home prices in September was +2.4%. The “house only” component was +2.5% and “land only” was +1.8%.

The “Toronto and Oshawa” region (+5.1%) had the largest year-over-year price gain, followed by Quebec City, Winnipeg and Regina (all +3.5%).

Four centres suffered year-over-year price declines in the latest month – Victoria (-3.3%), Vancouver (-0.5%), Charlottetown (-0.4%) and the Saint John, Fredericton and Moncton grouping in New Brunswick (-0.2%).

Statistics Canada sometimes binds several cities together in order to maintain confidentiality. In other words, if some smaller cities were stand-alone, it might be possible to infer the pricing policy of an individual homebuilder.

Alex Carrick

Find Canadian construction-related economic articles in Canadian Construction Market News and in the Economic Outlook section of Daily Commercial News.

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