- Housing starts inched up to 207k annualized units in December from 206k in December.
The monthly increase was led by a 4.2% increase in the often-volatile multiple-unit structures component that built on an outsized 14.0% jump in December. Single-unit starts declined 4.6% to partially retrace an 8.1% December gain.
Regionally, the increase in urban starts was concentrated in Ontario where a 25% increase built onto a 38% surge in December. Starts also rose 14% in Atlantic Canada but declined 6% in Quebec, 11% in the Prairies, and plunged 33% in British Columbia.
Our Take:
Strong new home building activity early in 2017 and late 2016, with the 200k+ readings over the last two months above our estimate of the underlying pace of household formation, is less surprising following a year in 2016 in which home resales set a new national sales record. The recent strength in housing starts has been largely concentrated in Ontario, where resale markets have also been the hottest in recent months although warmer-than-usual temperatures may also have played a role boosting starts in the region in January. Nonetheless, new building activity typically follows the resale market with a lag and home resales nationally slowed through the end of last year reflecting a combination of new provincial regulations in B.C. and federal macro-prudential regulations implemented in the fall while a modest drift higher in borrowing rates and stretched affordability conditions in some markets should further moderate housing demand. Although near-term permit issuance continues to point to near-term upside risk in starts (permit issuance was over 230k per month in November and December of last year, the most recent months available), we expect housing starts will, on balance, slow as the year progresses and continue look for overall residential investment to be a modest drag on overall GDP growth in 2017 for the first time in four years.
