TORONTO - Construction of new homes in Canada slowed last month to levels not seen since late 2001, driven by a drop in condominium construction and a tougher environment for borrowers, according to a national housing agency.
Several bank economists noted that new-home construction has been lower this year compared with 2007, because pentup demand has been largely satisfied, but the pace of decline sped up in November because of changes in the credit markets.
And the decline is expected to continue throughout next year, Canada Mortgage and Housing Corp. said.
CMHC reported Monday the seasonally adjusted annual rate of housing starts fell to 172,000, down 19 per cent from 211,800 in October.
That was far below private-sector economist expectations of about 200,000, and the biggest percentage decline since last December.
November marked a significant deterioration in CMHC's outlook for 2009 as both market value and consumer confidence crumbled to their lowest levels in recent memory.
But the November numbers "remain consistent with our forecast, which calls for more moderate activity of 212,000 units this year and 178,000 units next year," commented CMHC economist Bob Dugan.
The latest full-year adjusted numbers were below expectations for 2009. However, the CMHC noted that the agency still has to account for December results, which they expect will boost the overall full-year results closer to their 212,000 estimate.
Dugan noted home construction bulged early in the decade because of pent-up demand, but "over the last few years, this excess demand gradually decreased and our forecast for 2008 and 2009 reflects this new reality, with housing starts more aligned with long-run demographic demand."
The rate of urban starts dropped 21.6 per cent month-over-month to 144,800 in November, with declines in all parts of the country as volatile multiple starts tumbled 29.1 per cent to 81,700 while single-family starts eased 9.0 per cent to 63,100.
"After showing a great deal of resilience over the past year, the Canadian housing market is cooling," said Dina Cover, an economist at TD Bank.
"With our expectation that homeowners will be facing tight credit conditions and a softening job market over the next two to three quarters, the rapid rate of growth in housing starts seen since early in the decade - which was simply not sustainable - is likely to continue to unwind."
A correction in the Western Canadian housing market has been playing out since the start of the year, said Marc Pinsonneault, senior economist at National Bank.
"The pentup demand that was accumulating in the '90s has been satisfied, so we viewed a lower level of activity in Canada even without the fear of a North American recession," he said in an interview.
For the first 11 months of 2008, total residential construction starts were down 7.6 per cent compared with the corresponding period of last year, with urban single starts down 18.4 per cent but multiple-unit starts up 8.6 per cent.
"While single-family starts have been trending gradually lower for about five years, the pace of decline has accelerated in recent months - now down more than 35 per cent year-over-year - alongside falling sales and tighter credit conditions," said BMO Capital Markets analyst Robert Kavcic.
"Canadian housing starts have outpaced household formation for about six years, but with sales falling, credit conditions tight, and fading support from condos, a correction is now upon us."
The CMHC numbers coincide with a Royal Bank report saying the housing sector is entering a cyclical downturn, but the risk of a U.S.-style meltdown is remote.
RBC senior economist Robert Hogue says many factors that triggered the U.S. housing collapse are absent or much less evident in Canada.
He predicts the housing market will hold up even as a sluggish economy threatens income growth and erodes consumer confidence, because subprime mortgages are not prevalent in Canada, while the banks are stable and households are generally not overstretched financially.
"These factors should provide enough of a foundation to prevent housing markets from spiralling down even as the Canadian economy slips into recession," Hogue added.