The Canada Mortgage and Housing Corporation (CMHC) recently reported a significant decrease in the annual pace of housing starts in June 2024. The seasonally adjusted annual rate (SAAR) of housing starts fell by 9%, dropping from 264,929 units in May to 241,672 units in June. This decline underscores the challenges faced by the Canadian housing market, largely driven by high interest rates and regional disparities.

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Detailed Analysis

Regional Trends

• Urban Centers: The actual number of housing starts in urban centers across Canada experienced a sharp decline of 13% year-over-year. In June 2023, there were 23,518 housing starts compared to 20,509 in June 2024. This decrease is primarily due to reduced multi-unit starts in major cities such as Toronto and Vancouver. Toronto witnessed a dramatic 60% reduction in housing starts, while Vancouver saw a 55% decrease. These cities have been significantly impacted by the elevated interest rate environment, which has dampened construction activity​.
• Montreal's Growth: In stark contrast, Montreal experienced a substantial increase in housing starts, rising by 226% year-over-year in June. This growth was driven by a surge in multi-unit housing projects, reflecting strong demand and activity in the city's real estate market​.
• Rural Housing: The seasonally adjusted annual rate of rural starts was estimated at 18,438 units in June, indicating a more stable trend in rural housing compared to urban centers​.

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Economic Factors

CMHC Chief Economist Bob Dugan highlighted the significant impact of high interest rates on housing starts. He pointed out that the elevated interest rate environment has begun to catch up with major Canadian centers, leading to lower multi-unit starts, particularly in Toronto and Vancouver. Despite the strong growth in Calgary, Edmonton, and Montreal in the first half of 2024, these increases were insufficient to offset the overall decline. Dugan expects continued downward pressure on housing starts across Canada throughout the year​.

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Broader Market Implications

TD Economist Marc Ercolao noted that despite the recent decline, overall housing starts remain above pre-pandemic levels due to ongoing construction of purpose-built rental and condo units. However, he cautioned that this trend might reverse due to weak pre-sale activity in key markets and high construction costs. Ercolao emphasized the potential for further declines in housing starts if these challenges persist​.

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Clay Jarvis from NerdWallet Canada added that the current data highlights the limited margin within which builders are operating. He stressed that without significant and sustained monthly increases in housing starts, Canada will struggle to meet the ambitious housing targets set by CMHC. Jarvis expressed concern over the ability of builders to generate and sustain the required momentum, especially those reliant on pre-sales to initiate projects​.

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Future Outlook

The June data serves as a crucial indicator of the housing market's response to current economic conditions. With ongoing high interest rates and significant regional disparities, the outlook for housing starts remains uncertain. Key factors to watch include:

• Interest Rate Trends: Continued high interest rates could further dampen housing starts, particularly in major urban centers.
• Regional Variations: While cities like Montreal show strong growth, declines in Toronto and Vancouver could set the tone for the national trend.
• Market Dynamics: The ability of builders to adapt to high input costs and weak pre-sale activity will be critical in shaping future housing starts.

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Conclusion

The decline in housing starts in June highlights the complex interplay of economic factors affecting the Canadian housing market. As builders navigate these challenges, stakeholders must closely monitor trends to anticipate future market dynamics and address the evolving needs of the housing sector.