Toronto Housing Starts Rise Due to Multi-Unit Home Interest
Hello everyone,
In the last few months, we witnessed a notable uptick in the construction of new homes across Canada, particularly in the multi-unit sector. As someone keenly observing market trends, I wanted to delve into this recent development and share some insights with you all.
According to the latest data from Canada Mortgage and Housing Corp. (CMHC), housing starts in Canada saw a robust increase of 14% from January, reaching a seasonally adjusted annual rate of 253,468. This jump was primarily driven by a surge in apartment and condo constructions. Interestingly, this sector alone saw a 16% rise, contrasting with a 14% decline in single-detached homes. It's clear that developers are increasingly focusing on multi-unit buildings, especially in major urban centers.
Bob Dugan, CMHC’s Chief Economist, points out that this shift is a response to the ongoing national housing shortage. It seems that as space becomes more premium, the market adapts by maximizing the number of living units per plot.
However, the situation is more nuanced when we consider the month-to-month fluctuations. These can be quite significant due to the nature of large multi-unit projects. For instance, adjusted housing starts in February soared by 79% in Vancouver but dipped by 31% in Montreal. To provide a more stable view, CMHC also offers a six-month moving average of the adjusted rate, which in February slightly increased by 0.4% from January to 245,665.
This level of activity is still below the six-month trend we saw in late 2022, which was over 277,000 before rising interest rates began to impact the borrowing landscape and fueled recession concerns. The current economic climate, including tougher borrowing conditions and labor shortages, is expected to slow down the pace of new housing starts as the year progresses.
TD economist Rishi Sondhi and CIBC analyst Katherine Judge suggest that we might see a decrease in housing starts in the first quarter compared to the last quarter of the previous year. Some of this slowdown can be attributed to the high interest rates, which are expected to influence building activities adversely throughout the year.
Yet, not all is bleak. The unusually mild winter weather has provided some support to construction and even helped buoy the resale market. With expectations of interest rate cuts later this year, there is a sense of cautious optimism that the resale market might compensate somewhat for the slowdown in new constructions.
In summary, while we're seeing a promising increase in new home constructions, particularly in Toronto, the overall Canadian housing market is facing several challenges. High building costs, labor shortages, and restrictive borrowing conditions are likely to shape the landscape in 2023.
As we move forward, it will be crucial to monitor these trends closely to understand their potential impact on the market and, by extension, on our investment decisions. I'll keep you updated with the latest data and insights as they come.
Stay tuned for more updates, and feel free to share your thoughts in the comments below!
Thank you!
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