Canada’s new home construction industry went from a red-hot April to a much more tepid May, as new home starts fell to a seasonally adjusted 202,494 units, a 23% drop from April’s 261,559 starts, according to Canada Mortgage and Housing Corporation (CMHC)..It’s not the best of news for a country that's facing a serious, and growing, shortage of homes, but not entirely unexpected..Last month economists said April’s numbers would not likely be matched, due to labour and material shortages and high costs, as well as climbing mortgage rates..CMHC reports urban starts declined 24% month over month to 182,842 units, fortified by a slight increase in single-family home starts, which rose 6% to 42,952 units.. Housing startsHousing starts .That was offset by a 30% drop in multi-family home urban starts, falling to 139,890 units in May, with CMHC saying the monthly estimate of rural starts was 19,652 units, a 1.6% drop from April..In line with the national trend, Vancouver, Montreal, and Toronto had modest increases in single-family starts and noticeable declines in multi-family starts. The markets had overall decrease of 45%, 35%, and 28%, respectively, from April to May..Hit the hardest were Kingston (-88%), Kamloops (-95%) and Lethbridge (-95%) while on the up side were Guelph (+110%), Chilliwack (+386%) and Abbotsford/Mission (+409%)..On a province-wide basis, only the prairies saw gains: Manitoba (+74%), Alberta (+36%) and Saskatchewan (+3) while provincial declines were led by Prince Edward Island(-79%), Ontario (-39%), British Columbia (-34%), and Quebec (-23%)..“The decline in housing starts is due to constraints in new construction, including labour shortages and higher construction and borrowing costs, which is considerably affecting multi-unit starts,” said Bob Dugan, CMHC’s chief economist..“Despite this, starts have only declined to the relatively high levels observed prior to 2020.”.Continuing along the downward trajectory that began in November, Canada’s six-month trend in housing starts fell to 230,205 units in May, a 4.2% decline from April..The data matched the expectations of TD Economist Rishi Sondhi .“Starts continued their downward trend last month. This is in line with our expectations, as past declines in home sales continue to feed into falling construction activity,” said Sondhi in a note. “This is also consistent with permit issuance, which has dropped to 2019 levels, before the pandemic-induced run-up in demand and construction. .“That said, starts are volatile and not every data point will move in a straight line downwards. Even with today's decline, starts are tracking 4% higher than their first quarter average thanks to an April pop.” .“This, alongside what will likely be a super-sized gain in home sales, should generate a positive second quarter growth print for residential investment, supporting the overall economy.”.Affordability will be a growing issue, says Randall Bartlett, senior director of Canadian Economics.“Given the trend in housing starts is continuing to track lower, a lack of sufficient supply to meet demand will only worsen the affordability crisis, putting upward pressure on home prices and rent alike,” says Bartlett..“High borrowing and input costs are challenging new builds, and there is little relief in sight.”
