Canada’s Housing Market: Overbuilt and Overpriced?

TD Economics calls the Canadian housing market "slightly overbuilt and overpricedî and certainly a number of indicators lend credence to that view. The number of building permits issued in December reached their highest level since June 2007, multi-unit housing starts continue to edge higher and prices of both new and resale housing are making gains, albeit moderate gains.

It all comes down to continuing demand. Certainly, low interest rates will support demand but labour market weakness could put the brakes on growth. And a lot seems to be riding on the Toronto condo market.

According to Statistics Canada, municipalities issued building permits worth $6.8 billion in December, the highest level since June 2007. The majority of that ó $4.5 billion ó came from the residential sector, mostly in Ontario. And almost half of that ó $1.9 billion ó was for multi-family dwellings. That represented a 28.9% increase month over month, the second consecutive monthly increase and the highest level recorded since December 2005. "The growth was due to major condominium and apartment building projects initiated in Ontario,î StatsCan says.

Canadian housing starts, however, dipped 1% in January to 197,900 annualized units from 199,900 units in December, lead by Ontario. "Overall Canadian residential construction appears to be settling in at a well-behaved pace just below 200,000 units per year,î says Bank of Montreal economist Robert Kavcic, in a report, "slightly below the average of the past decade.î

But, Kavcic points out: "Multi-unit starts rose 0.4% in January, while singles fell 7.8%, continuing the theme of much stronger construction activity in the condo market. Multis are now up a hefty 35.4% in the past year, versus a gain of just 0.8% for singles.î

On the pricing side, StatsCan's New Housing Price Index rose 0.1% in December, following a 0.3% increase in November, with the metropolitan regions of Toronto and Oshawa and Montréal taking the lead.