FEBRUARY 08, 2013
Reminder to readers: I'll be in Toronto later this month talking about housing, the economy, and investing trends. Reserve your complimentary seats here.
Housing starts tank. Economists caught off guard:
I'd like to revisit an important post I wrote back in October predicting two things:
1) A construction slowdown was in the cards
2) Montreal would be the next "shoe to drop" in Canadian real estate
Read the whole entry here.
In short, I suggested that the combination of high existing inventory, falling MLS sales, and high numbers of completions on deck in 2013 was a guarantee of a slowdown in the construction segment, which will have implications for the labor market and GDP.
Today, we find out that housing starts have plunged by 26% y/y in January to the lowest annual rate since the recession.
BMO described the decline as "much worse than expected". While I'll admit that starts have fallen lower, quicker than I would have guessed (mind you, two months don't make a trend), but I've always had a hard time accepting that housing starts would simply realign with household formation rates (~180K) after massively outpacing them over the last decade (averaged 210K starts):
And here's why this matters:
This was not unexpected. And you can expect residential investment and employment in the construction sector to be substantial drags on GDP and the labor market going forward. This has always been my issue with the consensus "soft landing". With how levered the Canadian economy is to the current housing boom (45% of GDP growth since 2000 can be directly attributed to the construction and FIRE industries), I've always had a hard time understanding how policy makers could correct these imbalances without adversely affecting the economy. I wrote about this extensively here.
Montreal: The shoe has now dropped
In that same article, I noted that resale trends in Montreal were deteriorating and that the mainstream Canadian media would soon clue in. Outside of a few journalists in Montreal, few others have noticed how badly Canada's second largest metro is performing. This should change soon as the data has now turned decidedly terrible! January's resale data is captured in the images below.
Note: All images are property of TheEconomicAnalyst.com and may not be reproduced or otherwise used without consent. Which, by the way, I'm happy to give. Just don't pilfer my work and pass it off as your own, which certain research outfits and former MPs seem to be in the habit of doing.