The Canadian housing market experienced an 8.6% decline in housing starts in the month of May from April. This significant decline was partly as a result of the new measures taken by the Ontario government to put the housing market under control.
The Ontario government in April introduced several measures to cool the market including a 15% tax on foreign investors. This move has affected a number of new homes constructed in Toronto.
Benjamin Reitzes, Canadian rates and macro strategist at BMO Capital Markets noted that the decline in home construction made headlines in May as the figures slumped to 44.4% in May after going through a 22.7% drop in April as well to about 22,600. This is the lowest housing starts to be seen in the Toronto market since September 2014.
Reitzes went on to warn that this decline trend is expected to continue in the coming months as the market adjusts to the new changes. However the situation was salvaged by the fact that there had been a slight increase in new listings prior to the new measures that was able to provide buyers with more alternatives which in turn reduced the pressure on supply.
The rapid decline in housing starts was seen across Toronto and Southern Ontario in the wake of several measures taken by the government to cool the market.
The effects of the measures can be seen across several housing variables as there was a 20.3% drop in homes sales in May with the median selling price falling by 6.2%.
On a national level, home prices are still on the increase with new home selling prices increasing by 0.8% in April. This increase boosted the yearly increase to a ninth consecutive peak of 3.9%.
Most of the national price increases were fueled by Toronto and Vancouver as both cities experience an increase in land and building prices.
For the past six months on a national level, the housing starts were 214,621 in May which is an increase from April which was at 213,435.
Canada’s urban areas however saw an increase in housing starts according to Bob Dugan, chief economist for Canada Mortgage and Housing Corporation with row and apartment units driving up the increase. But for single and semi-detached housing starts there was a decline.
For the first quarter, the Canadian housing starts in 2017 are very strong said Josh Nye, an economist with Royal Bank of Canada but he predicts that by the send quarter, housing starts will go through a slowdown.