Most building began in early part of year

BY MARIO TONEGUZZI, CALGARY HERALD JANUARY 12, 2011 

Housing starts in the Calgary census metropolitan area rose in 2010 compared with a year ago.Photograph by: Grant Black, Calgary Herald

CALGARY - Housing starts in the Calgary census metropolitan area were up a whopping 47 per cent in 2010 from the previous year despite a recent slowdown in the homebuilding industry.

Canada Mortgage and Housing Corp. reported Tuesday that total starts finished the year at 9,262 units, up from 6,318 in 2009.

In the region, single-detached starts hit 5,782 units, an increase of 21.1 per cent from 4,775 while the multiple-family sector rose by 125.5 per cent to 3,480 units from 1,543 in 2009.

Richard Cho, senior market analyst in Calgary for the CMHC, said that since the summer builders have started fewer homes in response to higher competition from the resale market and slower new home sales.

That was reflected again in the December numbers as single-detached starts were down 40.4 per cent during the month compared with last year - the fifth consecutive month of year-over-year declines in that sector.

However, in December, multi-family starts increased by 56.1 per cent from December 2009 to 153 units from 98 a year ago.

"There were a number of reasons that contributed to the moderation in housing demand in 2010 - the decline in full-time jobs, flat wage growth, changes to the mortgage lending criteria and weaker migration flows," said Cho.

"In addition, new home builders were also competing with an elevated level of active listings in the resale market. As such, prospective buyers had a generous selection of homes to choose from on the resale side, and so some sales were diverted away from the new home market contributing to fewer starts."

He said single new home construction in the early months of this year are anticipated to remain relatively flat as employment continues to stabilize and the active listings in the competing resale market moves lower.

"We are anticipating production to pick up in the latter half of the year. Builders are forecast to start 6,100 single-detached units in 2011," he said.

Cho said multi-family starts, including semi-detached, row and apartment units, are forecast to approach 3,000 units in 2011.

David Hooge, president of the Canadian Home Builders' Association-Calgary Region, said many builders had a strong carry-over of inventory from 2009 into 2010 due to stronger sales in the latter half of 2009.

"Sales continued strong in early 2010 due to some renewed consumer confidence and a sense of urgency to get ahead of the concern over mid-year interest rate hikes and new mortgage regulations," he said. "The end of the second quarter of 2010 proved to be the end of the brisk sales we enjoyed through the first half. Slower sales continued through to the end of 2010."

With oil prices strong, the job situation improving and resale listings falling, local home builders are moving into the spring market with some cautious optimism, added Hooge.

"If these indicators remain favourable, we should experience a conservative increase in the number of starts for 2011," he said.

Todd Hirsch, senior economist at ATB Financial in Calgary, said the pace of construction activity in Alberta's residential areas has always seen a pattern of ups-and-downs, but closing off the year in 2010 it was definitely the latter.

After 18,500 new housing starts in November, Alberta builders slipped even lower in December with only 18,200 new starts - both figures seasonally adjusted at annualized rates.

"The new housing construction market in Alberta throughout 2010 was marked by generally weakening conditions. It peaked in March . . . with over 30,000 new starts (annualized), but slid lower from there," said Hirsch. "The threat of rising interest rates in late 2009 and early 2010 probably prompted some interested buyers to get into the housing market sooner, which left the pool of potential buyers fairly thin for the rest of 2010.

"The outlook for the housing market in 2011 is uncertain, but with general economic conditions gradually improving in the province, there could well be a slight up-tick in housing starts going forward."

Nationally, Canadian housing starts fell a worse-than-expected 13.5 per cent to 171,500 annualized units in December, from 198,200 in the prior month.

"While steeper than expected, the drop is not shocking given a trio of factors: yesterday's building permits report showed a notable drop in November residential permits; there was bound to be some payback from a massive bounce in Toronto multi-unit starts in the prior month; and, lastly, parts of Ontario were buried in snow for a good part of December," said Robert Kavcic, an economist with BMO Capital Markets, in a research note.