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May's new housing numbers a surprise

May's new housing numbers a surprise

Posted on: 6/11/2018 | Author: ATB Financial's Economics + Research Team

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Rising levels of vacant housing in Alberta’s main cities and stricter mortgage lending rules are doing little to slow new housing construction in our province. In fact, May’s new housing total was the highest seen since late-2015.

In May, builders started construction on 36,471 new homes. This figure is adjusted for seasonality and shown at an annualized rate (that is, it is the number of new homes that would be built in a full year if the same pace of activity was sustained for 12 months). This pace is 23.7 per cent greater than April and 12.5 per cent greater than the same month a year earlier.

At the beginning of 2018, housing starts had dipped and were more in line with the rest of the Canadian provinces, at least from a per capita basis. But May’s total comes as a surprise.

It’s surprising because Alberta’s largest cities Edmonton and Calgary, are experiencing lower sales activity and house prices are lower too. Typically weaker sales activity and a falling price would prompt homebuilders to stop building.

Albertans are also having to deal with costlier borrowing and stricter lending rules rates. The Bank of Canada raised its key interest rate once this year and twice last year which has made borrowing a little more expensive. Recent data suggest that rates may rise one to two times next year. Changes to mortgage lending introduced at the beginning of this year have made it more difficult for first-time homebuyers to qualify for mortgages as well.

The combination of lower sales activity, falling prices, more expensive lending and harder mortgage qualifications are doing little to stop the pace of new home construction, at least for now. In the coming months, these factors will likely bring a return to the pace we experienced during the first four months of the year.

New housing starts, graph​ ​​​​

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