The pace of Canadian housing starts slowed in January with a steep drop in multiple-unit homes, an indication builders are adjusting to a slowdown in buyers, according to Canada Mortgage and Housing Corporation (CMHC).
The agency estimated there were 11,737 actual housing starts in January and that is extrapolated to a seasonally adjusted annual rate of 180,248, down from 187,144 in December.
The Canadian dollar dropped slightly, to 90.45 cents US, on the news. That wiped out gains it made Friday as Canadian employment ticked down to seven per cent. It closed down 0.13 of a cent to 90.46 cents US.
Markets are awaiting a key speech by Fed chair Janet Yellen on Tuesday and the Canadian budget later in the day.
The agency did not say if it believed January’s extreme cold in most of the country affected housing starts.
“The trend in housing starts decreased slightly in January, while the inventory of newly completed and unabsorbed units saw a modest downward trend in the last half of 2013,” CMHC deputy chief economist Mathieu Laberge said in a news release Monday.
“This is consistent with our expectation that builders will continue to gradually adjust activity in order to manage their levels of inventory,” he added.
Housing supply falls 'into alignment'
Bank of Canada governor Stephen Poloz is hoping for a “soft landing” to Canada’s housing market, which had a 10 per cent rise in prices in 2013.
CMHC’s news that fewer new homes are being built could be the start of that soft landing.
TD Bank economist Connor McDonald said the underperformance of the Canadian economy compared to the U.S. and “domestic fatigue” from Canadian consumers point to a slower pace of housing starts throughout 2014.
"The decline in starts is an indication of housing supply falling into alignment with demand in most major markets," McDonald said.
Urban starts down 2.7%
Overall urban starts decreased by 2.7 per cent in January to 163,158 units on an adjusted annual basis, with stronger starts in the Prairies and Ontario offset by declines in Atlantic Canada, Quebec and British Columbia.
Multiple urban starts fell by six per cent to a seasonally adjusted 102,289 units in January, while there was a 3.4 per cent increase in single-detached urban starts to 60,869 units on the same seasonally adjusted basis.
The decline was faster than economists had expected, and could contribute to fewer jobs in construction and slower Canadian economic growth.
“Housing no longer looks to be a source of growth” for the economy, said Avery Shenfeld, chief economist at CIBC World Markets in Toronto, in a note to clients.
Last week, CMHC predicted builders will likely reduce housing starts in 2014 and 2015 as they adjust to rising interest rates and a slowdown in demand from first-time buyers.
In its own economic outlook for the year released today, BMO warned that the price of real estate in Toronto is outpacing family income.
It flagged housing prices in Toronto as a significant economic risk for 2014.