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Significant headwinds to impede 2019 housing starts

A man handing a woman a key to a house.

The rest of 2019 might bring with it major risks – including a sluggish national economy and the knock-on effects of previous mortgage hikes – that can lead to less new homes built in Canada’s major markets, CIBC economist Royce Mendes warned.

“Residential investment was downright ugly in the fourth quarter, and the latest reading on housing starts only added to the bad news on Canadian homebuilding,” Mendes told The Canadian Press.

Latest numbers from the Canada Mortgage and Housing Corporation showed that the seasonally adjusted annual rate of housing starts fell from 206,809 units in January to 173,153 units last month, considerably lower than prior predictions of a pace of 205,000.

“Prior to this reading, starts had seen a bit of a renaissance, rising back above 200,000 for four straight months. But the market has been a contending with the effects of higher interest rates and stricter lending standards, and a pace of 200,000 looked unlikely for the year as a whole,” Mendes added.

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These figures came after the weakest January of home sales since 2015, according to the Canadian Real Estate Association.

“As a leading indicator of economic activity, February’s steep decline in housing starts may raise some eyebrows in Ottawa,” TD Bank senior economist Fotios Raptis cautioned in a report.

“Although housing starts seemed to be unscathed by the new B-20 regulations that took effect in January 2018, higher borrowing costs and tougher mortgage qualifying conditions may finally be taking a toll on new residential construction.”

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