Home construction in October fell to its lowest level in more than a year, part of a slowdown that is expected to persist for much of next year as builders put the brakes on supply to match a chill in demand.
Canada Mortgage and Housing Corp. reported Monday that the seasonally adjusted annual rate of housing starts — which multiplies monthly levels by 12 to reflect annual levels — was 167,900 units in October, down from a revised 185,000 in September.
That’s a decline of 9.2 per cent, the lowest level of housing starts reported since last September when homebuilding first started springing out of the recession, said Bank of Montreal economist Robert Kavcic.
“While October’s decline was larger than expected, the overall trend of softer construction activity is not — October seasonally-adjusted home sales were 25 per cent below peak levels seen at the end of 2009,” Kavcic wrote in a report.
A decline in new housing starts, which usually lag a cooling trend by about six months, indicates that builders are slowing down construction activity as they see demand falling, to avoid creating a glut of unsold houses on the market.
Home sales volumes began to drop off this spring, normally one of the busiest times, following months of unusually robust activity in the final months of 2009 as Canada’s economy began to emerge from recession.
As consumers began to feel more confident about spending, many rushed into the market during the last quarter of 2009 and the first quarter of 2010 to beat expected increases in mortgage rates, sales taxes in three provinces and tighter federal rules for mortgage qualifications that were brought in last April.
CMHC said the moderation in housing starts reported in October is consistent with its annual forecast of 184,900 units.
Looking ahead, the association predicts housing starts could decrease by another 100,000 units or so, becoming more closely aligned with demographic demand which is currently estimated at about 175,000 units per year.
October’s numbers were well below that figure.
“Housing starts moved lower in October due to a decrease in urban single starts in all regions, with the exception of Atlantic Canada,” said Bob Dugan, CMHC chief economist.
Single-detached and multiple starts also decreased.
However, economists had predicted a much more modest decline in October starts, given that construction employment was surprisingly robust in October and residential building permits — a sign of how many houses could be built— had increased by 8.3 per cent in September.
October saw the third straight monthly decline and the fifth in the past six months.
The annual rate of urban starts decreased 12.3 per cent to 142,400 units in October.
Urban multiple starts fell 15 per cent in October to 84,700 units, while singles slipped eight per cent to 57,700.
Urban starts decreased 24.5 per cent in Ontario, 16.9 per cent in the Prairie Region, 9.1 per cent in British Columbia and 2.6 per cent in Quebec. They increased 32.9 per cent in Atlantic Canada.
Rural starts were estimated at an annual rate of 25,500 units in October.