Housing surge in Western Canada confounds experts.

Starts show ‘surprising strength’

TORONTO • The strength of new home construction continues to confound analysts and economists but most surprising was the surge in housing starts in oil-producing provinces in May.

“The major surprise in the details is the strength in housing starts in oil-producing provinces, as Alberta, Saskatchewan, and Newfoundland and Labrador all posted gains,” said Randall Bartlett, a senior economist with Toronto-Dominion Bank, referring to latest results from Canada Mortgage and Housing Corp.

CMHC reported Monday that starts reached 202,000 in May on a seasonally adjusted annualized basis, well above market expectation of 185,000 for the month.

“Housing starts showed surprising strength in May, as increased completions observed earlier in the year couldn’t hold back momentum in multi-unit starts. Indeed, looking through the month-to-month volatility, continued momentum in the Canadian housing market suggests the impact of the Bank of Canada’s January interest rate cut may be showing continued staying power,” said Bartlett, noting Saskatchewan starts were up 42.6 per cent from April, Newfoundland rose 63.8 per cent and even Alberta saw a 3.8 per cent increase.

While the statistics are seasonally adjusted, a particularly harsh winter may have had an impact on the numbers, Bartlett said.

The results may also show that employment has not been as severely impacted by oil prices as people had previously thought.

“The labour market is certainly weaker in these provinces, but you’re not actually seeing employment dropping in any massive way, it’s more of an adjustment in hours of work,” said Bartlett. “They are still working, and as such, are still able to support the housing market.”

Richard Goatcher, an economic analyst with the Alberta chapter of the Canadian Home Builders’ Association, says the statistics for the province have still been relatively strong.

“Cities like Lethbridge, which really aren’t impacted by the petroleum sector, have done well. You do see the slowdown in singlefamily starts in Calgary. Some of it is just affordability, more products are being moved into semidetached and townhouses because of the cost for singles,” said Goatcher.

“Overall, I think the numbers for this year (for Alberta) are better than most people expected.”

But before Albertans get too excited, Bank of Montreal economist Robert Kavcic noted new home construction is still nowhere where it was before the price of oil began to fall.

“If you look over the past two or three months, starts are still down about 25 per cent from back in the late summer or fall after oil prices began to fall off the rails,” said Kavcic.

“I think for construction activity, this level kind of makes sense because you will see a slowdown in in-migration.”

Eight of the 10 provinces ended up with stronger housing numbers in May, with only Manitoba and British Columbia retreating.

Urban multiples were responsible for most of the gains across the country, as they rose 16.9 per cent from April.

Meanwhile, Statistics Canada also said Monday that the value of municipal building permits climbed 11.6 per cent in April from March, rising $7.8 billion. Residential permits were up 1.2 per cent from the previous month.