Slowdown in housing construction in July after record-high June: CMHC

OTTAWA -- Construction started on fewer multi-unit housing projects and single-family houses in July compared with June, but the pace of residential building remained high by historical standards, Canada Mortgage and Housing Corp. reported Thursday.

CMHC's seasonally adjusted annualized rate of housing starts -- one of the key indicators of residential building activity and future housing supply -- dropped to 206,314 units in July, from 246,200 units in June.

Analysts said July's pullback was bigger than expected but noted that the biggest impact was from multiple unit projects, which can be volatile over the short term, and remained relatively high by historical standards.

"All told, today's report matches our expectation that starts will pull back closer to the more fundamentally supported 200k mark in the second half of 2018 as higher interest rates and regulatory changes continue to limit demand," TD economist Rishi Sondhi wrote in a commentary.

Josh Nye, a senior economist at Royal Bank of Canada, wrote that last month's pullback "was a bit larger than expected though it would be hard to call July's housing starts weak."

He noted that 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."

Urban multiple-unit projects such as condos and apartments declined by 20.3 per cent from June to 136,231 units in July, while single-detached urban starts decreased by 3.6 per cent month-over-month to 53,862 units.

Rural starts were estimated at a seasonally adjusted annual rate of 16,221 units in July.

"Regionally, Ontario saw the biggest pullback in July, with starts cooling to 66k after jumping above 100k in the prior month (when) a wave of Toronto condos broke ground in June," wrote BMO Capital senior economist Robert Kavcic.

He added that Quebec also pulled back but its 12-month average of just under 50,000 is the strongest in seven years, and other parts of the country continue to have "very robust" levels of residential construction.

Kavcic also noted that the Statistics Canada index of new home prices was up 0.1 per cent in June, the first monthly increase since February, largely due to the higher cost of materials.

Although Statistics Canada didn't specify which construction materials were a factor in the price increase, it noted that the overall price of most types of softwood lumber were up about 34 per cent compared with June last year.

TD's Sondhi observed that July also marked the first month in which retaliatory tariffs on steel and aluminum imports from the U.S. were in effect, which likely raised construction costs faced by Canadian builders last month.