The trend in housing starts across Canada continued to slide lower per a recent report from CMHC. “The national trend in housing starts decreased in December, the fifth decline in the last six months,” said Bob Dugan, CMHC’s chief economist. “Reflecting these recent declines, total annual housing starts in 2018 were lower than in 2017, as lower single-detached starts more than offset a slight increase in multi-family starts this year. Nonetheless, total housing starts remain elevated when compared to historical averages.”
More specifically, Vancouver, the nations most unaffordable housing market, saw housing starts finish the year down 11%. The 23,404 starts in 2018 marked the second consecutive annual decline, slightly below the all time record set in 2016.
With the pre-sale condo market experiencing not only weaker sales but lower prices this is likely to put further downwards pressure on housing starts in 2019. Per MLA Canada the absorption rate for pre sale launches fell to 37.5% in November, down from a record high 94.1% at the start of 2018. Both Urban Analytics and Altus Group are now reporting lower prices at launch.
This raises two important questions for the year ahead. How will the continued slowdown in the real estate and construction sector impact the broader economy? Real Estate & Construction make up over 20% of GDP in the province of BC. Further, 9.5% of the labour force is employed in the construction sector, well above the national total of 7.7%.
Secondly, how will this impact pre-sale condo buyers? Re-sale condo sales slipped to a six year low in December, with benchmark prices sliding 6% since June. Buyers are becoming increasingly picky, and with more options now available (inventory up 81% y/y) this has created liquidity issues for pre-sale buyers trying to flip. Assignments are becoming more difficult to sell and will continue to do so if prices keep sliding. This not only creates financing issues upon completion but raises the threat of buyers walking from deposits. If history is any indication (Miami 2007), a hefty deposit is not an immunity against losses to developers and construction lenders.