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Revisiting an important post on the impending construction slowdown and Montreal sales declines

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.

Cheers,

Ben

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.

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Ben Rabidoux
By Ben Rabidoux

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12 Comments

  • marc-andre trottier said:
    • 1 year, 2 months

    good read thanks Ben

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  • RE Lurker said:
    • 1 year, 2 months

    Maybe it's time to water-mark your images w/ your website... So some "greaterfool" (and others) don't use it in their posts. =b

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  • zerodown said:
    • 1 year, 2 months

    RBC still expects starts of 185k in 2013 and 175k in 2014. Formation is 175k-180k. Formation is pro-cyclical.

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  • Mike Smith said:
    • 1 year, 2 months

    Added a link to this in the comments section of the Gazette's article on the housing slowdown today. Hope you don't mind. http://www.montrealgazette.com/business/Prices+sales+slip+Montreal+housi...

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  • haha! said:
    • 1 year, 2 months

    Haha ! Watermark your image Ben, ask any teen ager and they will show you how to do that in 10 minutes.

    Why not?

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  • pt said:
    • 1 year, 2 months

    Ben - Any teasers for the upcoming Toronto session?

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  • Ben Rabidoux said:
    • 1 year, 2 months

    I may do a lengthy interpretive dance

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  • Francois Delorme said:
    • 1 year, 2 months

    Ben,

    What are your data sources for the Montreal charts?

    Great post by the way!

    Francois

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  • Aaron Lanni said:
    • 1 year, 2 months

    Same question as Francois, where did you get the info on Montreal - Jan 2013?

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  • Aaron Lanni said:
    • 1 year, 2 months

    Never mind found it! First time they didn't post the PR release on the main page!

    here it is Francois:

    http://cms.centris.ca/medias/nouvelles/STATSMLS_JANUARY2013_2.pdf

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  • Paul Ballard said:
    • 1 year, 2 months

    Montreal is being propped up by completely arbitrary pricing that bears no resemblance to present underlying market conditions nor to the inexorable march of pricing back down to the historical mean. Rather like the stock market. Disconnect with fundamentals. Soon it shall be revealed that no, this time is not different, and yes, the Emperor has no clothes.
    Keep reporting the data Mr. Rabidoux. Your analysis is valued in a country where media concentration ensures a barrage of non-stop cheerleading and one-sided reporting on the metrics. Bad for advertising revenue you know ;)

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  • peter said:
    • 1 year, 2 months

    Well done. I wonder what facts the bank analysts look at when making their predictions. For that matter, what the heck is CMHC basis their rosie numbers on?

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