The Canada Mortgage and Housing Corporation (CMHC) says the seasonally adjusted annual rate of housing starts fell to 194,663 units in May compared with 213,498 in April, the second consecutive monthly fall since a record high set in March. This is due to the fall of constructions intentions in Toronto, another sign that one of the country’s hottest real estate markets might be cooling down.
May’s figure was a bigger decline figure than economist’s expectations for a decrease to 205000. The government is trying to fasten securely on the Toronto and Vancouver markets amidst fears of an eventual bubble.
Since September 2016, Toronto dropped by 43 per cent in single detached starts, and slipped by 13 per cent in Vancouver. The CMHC said in a statement that this decline coincided with a noticeable increase in new home listings in the resale market, providing added choice to home buyers, causing less demand to spill over into the new home market.
The provincial government imposed a 15 per cent foreign buyer’s tax in April in Toronto, the Ontario’s engine of the economy. British Columbia made the same move last August in an effort to cool Vancouver’s estate market.
Toronto’s market cooled in May as sellers cashed in on high prices and buyers moved to the sidelines in the wake of the tax and other new rules aimed at dampening demand in Canada’s largest city, as shown by this week’s data.
Benjamin Reitze, BMO Capital Markets strategist says that the activity in Toronto could well remain subdued for the next few months as the market digested the effects of the foreign buyer’s tax.
“The surge in existing home supply we’ve seen over the past two months could also help restrain home building activity as buyers have more choices”, he said in a note to clients.
Across Canada in May, single starts dropped by 7 per cent while multiples (condominiums and apartments) dropped by 10 per cent.
In trying to prevent Canadians from being over-indebted, the provinces have made moves from the federal government last year to tighten mortgage lending regulations.
The government excluded apartments and condominiums from the price index, which according to them is a cause for concern accounting for one-third of new housing.