Langley Real Estate

Most probably buoyed by unseasonably warm weather, preliminary numbers from the CMHC for January blew the roof off expectations, with starts surging to 249,300 units – their highest level since March 2004 and well above the 3 and 6-month average levels of 220,000- 230,000 units. The headline number was led by a jump of 31.4% in multiples, while singles turned in a more modest 5.9% increase.

We should note that large month-over-month fluctuations like this are not uncommon at all, especially in the more volatile multiples (apartments, condominiums) market. Also, recall that this data comes on the heels of a 7.8% decline in December starts. Furthermore, the positive weather-related impacts were likely to have been inflated by the seasonal adjustment factor.

As for geographical distribution, the oft-talked about “west versus the rest” gap closed a bit in January: while all provinces recorded an increase in starts, British Columbia and Alberta did not see increases on the same scale as those in the Atlantic and Central regions. Again this suggests that Mother Nature played a role here as the eastern half of the country recorded the most unusually warm temperatures. Among the provinces, Manitoba came out ahead as starts there nearly tripled, getting back close to record highs from October of last year.

Looking ahead, fundamental demographic, economic and financial data continue to support a healthy housing market. The new house price index (NHPI) for December was released today and, for the first time in more than 5 years came in flat compared with the previous month. While the NHPI remains up 10.7% on a year-over-year basis, this recent flattening in the price trend is consistent with developments in the resale market. Moreover, employment data to be released tomorrow should once again point to healthy job creation and wage growth. Those factors, combined with relatively low mortgage rates, leave a picture of still-favourable affordability and a positive buyer outlook on the market.

At the same time, however, we still expect starts to ease in line with demographic and economic fundamentals, which, although positive, don’t support such lofty levels of homebuilding activity. In particular, look for starts to fall to 205,000 units on average this year, down from the 228,400 turnout in 2006. But there is no reason to expect the adjustment to necessarily be gradual. As frigid temperatures have finally arrived, it would not be surprising to see starts fall dramatically in February, with particular softness in those regions that experienced the largest gains in January.

Pascal Gauthier, Economist
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