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Housing Starts Dramatically Exceed Expectations in April

Bottom Line
• Housing starts rose to a seasonally adjusted level of 244,900 units in April, up a whopping 14% from March.
• Although rural starts were down for the month, urban starts more than made up for the difference, increasing by 35,000 units.
• Urban multifamily units were the key driver of the advance, up 27% from their already high levels in March.
• Ontario and Quebec experienced the biggest levels of growth in starts, rising by 12% and 43%, respectively.

Analysis
Housing starts dramatically exceeded expectations in April, increasing by 30,000 units over March to 244,900. We were calling for housing starts to hit 222,800 units and market consensus was much lower at 205,000 units. Starts reached a new multi-year high, since September 2007. This increase represents a 14% monthly climb and a 29% jump year-over-year. Multifamily units did the majority of the legwork, rising by 34,000 starts from March, while single-family units were virtually stable at 67,700.

Total urban starts increased dramatically in April, going up 18% to 226,200. Although starts in the rural sector dropped by 19%, it had little impact on the total monthly change given the small size of this sector. Most provinces saw increases in total starts for the month, with the exception of Manitoba (down 37%) and Nova Scotia (down 41.9%). Starts activity in Quebec and Ontario was very robust as starts in each province hit a seven-year high.

This is the fifth consecutive month that starts have increased and remained above 200,000 units. The number of single-family units has remained in a holding pattern since late 2010, meaning the majority of the increase since that time has been concentrated in multifamily units. This latest result will pull up our housing starts forecasts for the year, above our call last month of 199,000 units. Our expectation is that starts will eventually moderate in the near term given the growth levels we’ve seen over the last year. Plus, the Bank of Canada will soon tighten monetary policy, lifting rates gradually. This will increase mortgage rates from current low levels. This is most likely driving the upward push in Canada’s housing market. Once rates climb, housing affordability will become further out of reach for some, especially first-time homebuyers.

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