Canada's once-sizzling housing market continues to fall back to more sustainable levels, but as yet is managing to avoid the earmarks of a damaging crash that would spill over into the general economy.
The latest data on housing starts from Canada Mortgage and Housing Corp. shows construction fell to 15,390 for a seasonally adjusted annual rate of 174,858 units in April, moderately lower than the upwardly revised 181,146 recorded in March.
The dip was concentrated mostly in Ontario, British Columbia and Atlantic Canada and mostly came in the condo market.
"Canadian homebuilders are facing the new reality that the decade-long housing boom has ended, and are retrenching in orderly fashion," said Sal Guatieri, a senior economist with BMO Capital Markets.
"They are cruising below annual household formations of about 185,000, reducing the risk of a supply glut now that demand has slackened."
End of housing boom
TD Bank economist Sonya Gulati noted the long-held concerns about Canada's housing market, particularly from the International Monetary Fund and the Bank of Canada, but said the recent trend should ease some of the fears. Even when the market was overheating, she said, that was mostly due to the influence of Toronto and Vancouver and not widespread.
"Both have been recording fewer starts over the past six months. If the slower pace continues to prevail, the concerns of too many projects in the absence of actual demand will subside," she wrote in a note to clients.
Analysts said the housing market will likely act as a small drag on economic growth this year, after contributing 0.4 per cent to gross domestic product output in 2012.
Most if not all housing indicators — starts, resales, building permits and prices — have cooled considerably since July 2012 when Finance Minister Jim Flaherty's new tighter regulations for mortgages and lending practices went into effect.
April housing starts meet expectations
Last month, Bank of Canada governor Mark Carney told a parliamentary committee that all indicators were moving in the right direction and that household debt accumulation had stabilized, albeit at an extremely high level of 165 per cent of disposable income.
April starts were on the mark with economist expectations and slightly below the first quarter average.
The seasonally adjusted annual rate of urban starts was down 2.5 per cent, led by a 3.5 per cent decline in multiple urban starts. Single urban starts remained relatively unchanged from March.
Regionally, starts fell by 41 per cent in Atlantic Canada, 15 per cent in Ontario and six per cent in British Columbia.
Offsetting the losses, starts rose by 15 per cent in Quebec and nine per cent in the Prairies.