A jump in residential construction activity last month gave Red Deer the biggest year-over-year increase in housing starts among Alberta’s largest urban centres.
Canada Mortgage and Housing Corp. reported on Tuesday that work commenced on 80 homes in the city during July — a 91 per cent increase from the 42 starts last July. By comparison, Grande Prairie’s July housing starts improved by 18 per cent, while in the Edmonton metropolitan area the increase was nine per cent and in the Regional Municipality of Wood Buffalo it was two per cent. In the Calgary metropolitan area, housing starts tumbled 44 per cent from last July, in Medicine Hat they fell 36 per cent, and in Lethbridge they were down 26 per cent.
Combined housing starts in the seven centres were down 17 per cent, year over year.
In Red Deer, 34 of last month’s starts involved single-detached homes, up from 26 in July 2010. Forty-six were in the multi-family category, up from 16.
Seven months into the year, residential construction in Red Deer is still 23 per cent behind last year’s pace to the same point.
Elsewhere in the province, housing starts in the Regional Municipality of Wood Buffalo so far this year are 19 per cent ahead of the tally to the same point in 2010, and in Lethbridge, starts are up 15 per cent. The year-to-date totals are down in every other centre: from 50 per cent lower in Medicine Hat to two per cent less in Grande Prairie.
Overall, cumulative starts in the seven centres are 21 per cent lower so far this year than last.
Nationally, housing starts were up 12 per cent from last July, calculated on a seasonally adjusted basis, said CMHC. The figure was also more than four per cent higher than in June.
CMHC speculated that the increase reflected the fact that builders were catching up to robust demand last year, rather than expectations of coming growth.
Home building activity has been increasing through the first seven months of 2011, but starts are still down 4.6 per cent from a year ago. In the first half of 2010, the market was rebounding from recession, prompting a jump in demand for housing units.
Economists doubt whether the pace can continue, as the prospect of a double dip recession in the U.S. forces them to rethink the prospects for economic growth in Canada.
“While many economic indicators have pointed to much softer growth through the summer, Canadian housing starts is not one of them, still likely responding to a firm rebound in sales activity in the second half of 2010,” said Bank of Montreal economist Robert Kavcic.
“Going forward, expect underlying household formation and current economic concerns to apply some gravitational pull to starts.”
Buyer sentiment is “vulnerable to recent market turmoil,” as the large decline on stock markets has a negative effect on consumer wealth and confidence, making them less inclined to make big purchases, added CIBC economist Peter Buchanan.
“That of course can cut both ways, it can make investors fearful of buying real estate, on the other hand it does mean the Bank of Canada won’t be tightening quite as early,” Buchanan said.
“The other thing is that if people are worried about putting their money into the equity market, hey real estate may not look so bad.”
But even with low mortgage rates that make the cost of carrying a mortgage cheaper, pent up demand in the housing market could be largely exhausted.
Many buyers rushed into the market during the closing months of 2009 and early 2010, when the Bank of Canada rate was set at an emergency low of 0.25 per cent. Some observers say it’s unlikely Canada’s housing market can continue at a strong pace, with prices continuing to rise relative to rent and income levels.
Home sales began to moderate in January, owing to a combination of high household indebtedness and recently implemented tougher lending rules, which should take some of the heat out of home building activity, said Francis Fong, an economist at TD Economics.
“All said, the current pace of home building activity is well-beyond the fundamental level of household formation and we expect a slow decline over the next 18 months,” Fong said.
With files from The Canadian Press.