TORONTO – The Canada Mortgage and Housing Corporation reported Thursday a much larger decrease than economists had expected – that new home building across Canada dropped by a sharp 13 per cent in November.
The seasonally adjusted annual rate of housing starts dropped from 181,100 units in November down from 208,800 in October.
This news comes in the wake of recent reports that Canadian home prices are in line with those in the U.S. ‘at the peak of its bubble.’
The report from Britain’s The Economist cited Canada as one of nine countries in the world where housing is overvalued by 25 per cent or more.
Meanwhile, Statistics Canada reports Thursday that its New Housing Price Index rose 0.2 per cent in October after a similar increase in September. Its data on new home prices showed the metropolitan regions of Toronto and Edmonton were the top contributors to the increase.
What do these stats mean for Canadian households? Could this decline in building activity and spike in home prices be a sign the Canadian housing-bubble is bound to burst?
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Gregory Klump, the Canadian Real Estate Association’s Chief Economist thinks the housing market is safe.
“Home prices are plateauing, not crashing. You’d need a trigger, like massive layoffs or a jump in interest rates neither of which is in the cards,” he says.
“There is a risk if Canada enters a recession that there could be layoffs, but the prevailing economic outlook for Canada is not to enter into a recession but for slow economic growth.”
According to Douglas Porter, Deputy Chief Economist at Bank of Montreal, the decline in November building activity wasn’t necessarily a sign the Canadian housing market is collapsing.
He pointed out that the decline was entirely due to a 23 per cent drop in the volatile multiple unit sector, while the “more stable (and important)” single family market nudged up 3.5 per cent.
However not everyone agrees.
“Our general view on housing is that it is significantly overvalued and that we expect a correction at some point in the not-too-distant future,” says economist David Madani with the research consultancy Capital Economics.
While home prices in the U.S. have dropped 34 per cent since 2006, in the last year alone in Canada, they’ve climbed 5.5 per cent according to October statistics.
With files from The Canadian Press
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