Starts plunge in December as signs of soft landing in housing intensify

OTTAWA _ Canada’s housing market appears to be heading for a soft landing in 2011, with the pace of home-construction slowing last month _ easing concern that a glut of new properties will come on the market and undercut real-estate prices.

Canada Mortgage and Housing Corp. reported Tuesday that home starts fell to an annualized 171,500 last month, well down from November’s annualized rate of 198,200 units.

Most of the decline was attributed to fewer multiple-family dwelling units _ condos and apartment buildings _ although single-family housing starts also fell.

Recent data suggest that starts are on a downward track toward the 170,000 number that many believe is the sustainable level of new homes in Canada, down from an estimated 192,500 units in 2010.

“It looks like we’re getting a soft landing in the housing market,” said Robert Kavcic, an economist with BMO Capital Markets.

“Broadly, it means any concerns of a housing bubble that might have been in place in the first half of last year are pretty out the window now.”

Kavcic said concerns about a housing bubble might have been justified in the spring of 2010, after strong growth that began in the fall of 2009 as Canada emerged from the worst recession in decades.

Demand began to ease later in 2010 as the Bank of Canada began telegraphing it would start raising rates, harmonized sales taxes took effect in British Columbia and Ontario in July and new rules on mortgage lending took effect last April _ two months after they were announced by Finance Minister Jim Flaherty

During the last three months of 2010, housing starts averaged on an annualized pace of 181,600, with December the weakest month.

Brian Bethune of IHS Global Insight said the longer-term prospective for housing in Canada is for continued slowing, and with prices, which are currently estimated at about 10 per cent above fundamentals, softening.

“The housing industry is losing considerable momentum,” he said. “Housing starts are forecast to be lower in 2011, much closer to the long-run average.”

On Monday, Statistics Canada reported that building permits fell 11.2 per cent in November from the previous month, with the value of residential permits declining 7.2 per cent. Permits are an indicator of long-term building intentions.

The Bank of Canada has forecast a slowing of the housing market after the torrid rebound from recessionary levels, but has also warned homebuyers not to take on too much debt in purchasing homes.

Flaherty has also hinted he is prepared to intervene by with tighter lending conditions if a bubble develops.

December’s drop-off in housing starts was mostly due to a plunge in the multiple starts segment, especially in Ontario, the CMHC said.

Single-detached starts were also down, but minimally.

The seasonally adjusted annual rate of urban starts fell 13.3 per cent to 149,100 units in December.

Urban multiple starts moderated by 20.1 per cent in December to 84,500 units, while single urban starts moved lower by 2.6 per cent to 64,600.

December’s seasonally adjusted annual rate of urban starts decreased 45.4 per cent in Ontario and 9.8 per cent in Atlantic Canada.

Urban starts increased 46.8 per cent in British Columbia, 13.5 per cent in Quebec, and 0.7 per cent in the Prairies.

Rural starts were estimated at an annual rate of 22,400 in December.