Highlights:
- Housing starts fell to 206k annualized units in July, retracing a good portion of June’s unexpectedly strong jump to 246k.
- The 6-month trend in housing starts edged down to 220k annualized units from 222k in the previous month. That pace remains well above most estimates of underlying household formation.
- July’s pullback was concentrated in multi-unit starts, which jumped to a record high in the previous month. Single unit starts also fell, hitting their lowest level in more than three years.
- Ontario and Quebec saw the most substantial slowdown in July after sizeable gains in June.
Our Take:
Today’s pullback in homebuilding was a bit larger than expected though it would be hard to call July’s housing starts ‘weak’. Last month’s 206k annualized pace is down from 222k over the first half of the year but remains above most estimates of the underlying rate of household formation. July’s decline was concentrated in multi-unit starts but that component still came in only slightly below last year’s pace, which was a record high. Single unit starts, meanwhile, continued to trend lower and have accounted for less than 30% of urban construction year-to-date, for the first time on record. The shift toward multi-unit construction isn’t surprising given very poor affordability of single homes in some key Canadian markets. And the decline in single unit starts is in keeping with a more substantial slowdown in that segment of the resale market.
What has surprised us is the persistent strength in overall homebuilding. We continue to expect the factors that weighed on resales in 2018—rising interest rates and more stringent mortgage qualifying rules—will also put downward pressure on new construction. While starts look set to remain above 200k in the near-term, we expect a slowdown relative to the first half of the year will put some downward pressure on the residential investment component of GDP.
