Canada’s odd surge in housing starts disappeared as fast as it arrived. CMHC data shows starts plunged by nearly a fifth in October, led by weak condo demand. BMO Capital Markets told investors this was largely expected and unlikely to lift prices. Starts remain historically elevated, and a wave of record completions will hit the market soon.
Canadian Housing Starts Plunge 17%, Down 46k Units In A Month
Canadian housing starts plunged in October, with the SAAR falling 17% to 232,800 units, according to the CMHC. Despite the drop, activity remains elevated by historical standards—especially if Canada maintains its current immigration targets.
“That brought the year-to-date average down to 256,000, a bit below our call for the year (260k) but still above last year’s overall result (245k),” explained BMO senior economist Robert Kavcic.
The drop in housing starts was expected, following a slump in pre-construction sales. Most new homes in Canada are sold before construction begins, allowing developers to test demand and limit risk. As a result, falling sales show up in starts with a 2 to 4 year lag.
A sharp decline in condo sales across large, investor-driven markets is now hitting construction. “Apartments in the major cities accounted for all of the decline, unsurprisingly in light of the pronounced weakness in the condo market,” explains Kavcic.
Canadian Housing Starts Peaked, But Supply Is Just Getting Started
Source: BMO Capital Markets.
Housing starts may be slowing, but BMO isn’t concerned. The number of homes under construction remains just below the record 360,000 units in urban areas—double the volume from a decade ago.
While they acknowledge construction has likely peaked, a surge of completions is about to hit the market. “They [completions] are poised to challenge last year’s record high, adding heavily to supply and helping contain prices,” says BMO.
The bank doesn’t just sound like they’re doubting a quick recovery—they’ve stated it will take years, not months. They argue that Canada’s housing boom was driven by a rare mix of conditions unlikely to repeat: peak Millennial demand, record immigration, pandemic migration, excess liquidity, ultra-low rates, maxed-out valuations, and speculative market psychology. It’s a controversial take—but one now being echoed by banks like RBC.
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