Housing starts fall in February

VIRGINIA GALT

Globe and Mail Update

March 9, 2009 at 12:20 PM EDT

Canadian housing starts declined to a seasonally adjusted annual rate of 134,600 units in February from 153,500 in January, with home builders waiting for the market to improve before putting more shovels in the ground.

Condominiums, apartments, row houses and other non-detached units led the decline, Canada Mortgage and Housing Corp. said Monday.

Economists said the February housing starts were lower than expected but not surprising, given the general state of the economy and the weak Canadian housing market.

Housing starts reflect the actual, shovel-in-the-ground start of construction – and until sales of new and existing homes pick up, developers are not inclined to start new construction, CMHC chief economist Bob Dugan said.

Condominium builders, for instance, generally want to have the majority of their units pre-sold before taking on the high costs associated with construction, he said.

The seasonally adjusted annual rate of multiple starts in urban centres fell by 17.5 per cent to 63,000 units in February, while urban single starts fell by 11 per cent to 44,500 units.

“New home construction is slowing to more sustainable levels and starts are forecast to come in at 160,250 units, within a range of 141,000 to 180,000 units in 2009. These trends are reflected in year-to-date actual starts,” CMHC said.

Preliminary figures indicate that there were only 6,598 actual starts of all types of housing in February, down from 14,268 actual starts in February, 2008.

The number of multiple dwelling starts in urban centres fell to 3,575 in February from 9,192 a year earlier.

Economists, who had forecast February starts to come in at between 140,000 and 145,000 units on an annualized basis, look at housing statistics as an important indicator. Typically in a downturn, sales have to stabilize and pick up before construction activity resumes.

“The recent slew of housing sector reports have all been pointing to a continued correction in the Canadian housing market, and this report suggests that the pace of adjustment is accelerating, which means that the housing sector may remain a key source of drag to Canadian economic activity,” Toronto-Dominion bank economist Millan Mulraine said in a research note.

“On the bright side, it is a clear indication that Canadian builders are retrenching their construction activity in the face of waning housing demand, and this may mean that the build-up of unwanted inventory may not become such a source of drag on home prices as has been the case in the U.S,” Mr. Mulraine wrote.

Royal Bank of Canada economist Josh Heller said the February housing statistics reflected the sixth consecutive monthly drop – “the 12.3 per cent drop on the month brought starts to 134,600 annualized, its lowest level since June, 2000.”

Mr. Heller said the housing boom of recent years made homes less affordable as “house price gains in certain regions of the country outstripped increases in income.

“However, this source of weakness is increasingly being overlaid by the macroeconomic fallout of … credit tightening weighing on employment growth,” Mr. Heller wrote.

On a regional basis, most of the country, with the exception of Atlantic Canada, “saw a material setback in construction activity in February,” Bank of Montreal economist Robert Kavcic said in a note to clients.

“Western Canada, in particular, continues to see activity fall off a cliff, with urban starts in B.C. at the lowest level since late 2000, a staggering 75 per cent below year ago levels. Urban activity in Ontario registered the lowest since 1998, while Quebec and the Prairies also fell sharply in the month,” Mr. Kavcic said.