With home construction starts rebounding in December, Canada's
builders showed few signs of slowing down despite persistent warnings
about high levels of consumer debt and economic uncertainty.
The Canada Mortgage and Housing Corp. reported Tuesday that house
starts rose more than expected to more than 200,200 units last month —
from 185,600 in November — with condos in Toronto and the Atlantic
region leading the way.
In Toronto, housing starts reached their strongest level since 2008, with 39,745 new units in 2011. In 2010, 29,195 units were started. In December alone, construction began on 3,365 new homes, compared to 1,573 in December 2010.
The increase beat economists expectations and again raised the
issue of when Canada's housing market would begin to cool to what
analysts regard as a more sustainable, replacement level.
There's a suspicion that at least some types of housing in some
markets has been overbuilt as builders and consumers take advantage the
low interest rates that have been available for several years.
"There is now a large overhang of completed, but unoccupied
multi-units as low interest rate likely fuelled some overbuilding in the
condo market, which puts some downside risk to future building in this
sector," said TD bank economist Diana Petramala,
Petramala estimates activity in the new year will cool to a
sustainable annualized range of 175,000-185,000 units. The monthly
statistics released by Canada Mortgage and Housing Corp. attempt to
adjust for seasonal variations in starts.
Interest rates are not expected to increase in the coming year,
but analysts noted that Canadian households are already at record high
debt levels, and the growth of both jobs and income has stalled.
Some analysts, such as David Madani of Capital Economists, have
suggested Canada's home prices might fall as much as 25 per cent in the
next few years, while the Bank of Canada has also forecast a correction,
although much more mild.
December's rebound, however, concluded another solid year in Canada.
For 2011 as a whole, the preliminary estimate is that 193,000
units were begun, with the last six month seeing an average pickup of
200,000 annualized.
Scotiabank's Derek Holt said it was unclear whether housing would
add to gross domestic product growth in the fourth quarter, given that
it was even stronger — in terms of starts — during the third, when the
economy expanded by 3.5 per cent.
"What we don't know is how renovation spending performed during
the quarter and some value-added administrative functions to round out
the full perspective on how housing contributed to GDP growth in Q4,"
Holt explained.
December's starts are seasonally adjusted and projected over the year — the actual number of units begun in December was 16,576.
The seasonal figures attempt to adjust for the impact of slow and busy periods during different parts of the year.
Canada Mortgage and Housing Corp. says urban starts rose in
December by 52.9 per cent in Atlantic Canada, 35.3 per cent in Ontario
and 9.0 per cent in Quebec.
They fell 19.8 per cent in British Columbia and 11 per cent in the Prairies.
Starts of single homes in urban areas increased by 3.5 per cent,
while urban starts of multiple dwellings — condos, apartments and
retirement homes — rose by 14.5 per cent.
CMHC provides insurance that provides mortgage lenders with some protection from defaulting borrowers,