Housing starts remain brisk

Residential builders in Red Deer remained busy in May, with 53 starts on single-family houses in the city during the month, according to Canada Mortgage and Housing Corp.

Residential builders in Red Deer remained busy in May, with 53 starts on single-family houses in the city during the month, according to Canada Mortgage and Housing Corp.

That figure was up 43 per cent from May 2012. But starts on multi-family units — which tend to fluctuate as projects commence — was down to 13 last month, as compared with 30 a year earlier.

When the two housing types are combined, May 2013 starts came in at 66, slightly behind the 67 recorded in the same period last year.

So far this year, there have been 364 housing starts in Red Deer: 164 single-family homes and 200 in the multi-family category. That compares with 256 during the first five months of 2012, when there were 122 single-family and 134 multi-family starts.

Among the province’s other six other centres with 100,000 or more people, only Medicine Hat had fewer housing starts this May versus the same month last year — and the decline was just one.

For this calendar year to date, Calgary has had fewer housing starts than it had to the same point in 2012. All others are up.

Nationally, CMHC reported a surprising resurgence in May.

“It’s defying gravity,” said Benjamin Tal, deputy chief economist with CIBC World Markets.

But he predicted a slowdown in the future, a conclusion supported by other economists.

“May’s sharp jump in the pace of new home construction is unlikely to be sustained,” TD Bank economist Dina Ignjatovic said.

“Indeed, slower price growth in the housing market could lead to lower home-building activity in the coming quarters. Moreover, the overbuilding that has taken place over the last 10 years could lead to new home construction falling below this demographic need for a period of time.”

That is also the view of CMHC analyst Mathieu Laberge, who noted the six-month moving average, or the trend in starts, remained largely unchanged in May.

The market did fall following last July’s changes to regulations that made mortgages more difficult and more costly to obtain for first-time buyers. The cooling was most noticeable in starts and in sales, which are off about 10 per cent from last year. But prices have remained stubbornly immune.

Last week, the Paris-based OECD cited Canada as one of the most concerning markets in the world, one of three in which despite their elevated levels, prices are still rising.

But Tal, and many others, believe with sales falling, prices will also eventually move lower.

Barring that, he says the superintendent of financial institutions may have no choice but to follow through on its hint that it might lessen the amortization period from 30 to 25 years for uninsured mortgages — those with more than 20 per cent down payment — bringing those in line with CMHC-insured borrowing.

The Bank of Canada and the federal government have long worried about Canada’s housing market continuing to expand beyond fundamental levels because of the potential for a sudden and steep crash once interest rates start to rise, which would not only put many homeowners’ finances in jeopardy, but could also sideswipe the economy.

One encouraging element in the May numbers — for those who subscribe to the soft landing scenario — is that most of the gains came in the notoriously volatile condo market, which registered a 22.2 per cent jump in starts. Single urban starts rose only three per cent.

Urban starts increased 14.6 per cent in May, led by gains in Atlantic Canada and Ontario, while the Prairies saw little change and British Columbia and Quebec decreased.

With files from The Canadian Press.

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