Canadian builders are on pace to start work on more than 215,000 new homes nationwide. That would be the most since 2007, and a rebound after four straight years below 200,000.
The strength isn’t confined to Toronto. Advances are broad-based, including sharp rebounds in the Prairies and Quebec and elevated levels in British Columbia, in addition to residential construction in Ontario that’s on pace for its best year since 2004.
The level of activity has surprised policy makers and analysts, most of whom began the year predicting the industry would be a drag on the economy.
Economist forecast housing starts would drop in 2017 to the lowest since the 2009 recession. A year ago, the Bank of Canada projected housing would curb growth by 0.2% in 2017. It has revised that projection upward to a 0.3% contribution to growth. The half-percentage-point swing explains a big chunk of the bank’s total revision for this year.
Various factors have spurred these trends. For one, the economy is performing better than almost anyone expected. Canada’s employers have created almost 400,000 jobs since mid-2016, which has fueled the fastest expansion in almost a decade.
Also, federal measures to tighten access to mortgage insurance haven’t had quite the cooling effect some predicted when they were imposed late last year, according to Doug Porter, chief economist at Bank of Montreal.
“Sentiment was at a pretty low ebb toward the housing sector at the end of last year,” Porter told Bloomberg.
But perhaps the biggest influence has been an acceleration in population growth that few anticipated. Statistics Canada estimates the population has grown at an annual pace of more than 1.2% over the past year, which is the fastest since the early 1990s.
“A lot of the baseline assumptions on what demographic demand are not right anymore,” according to Porter.
So, having gotten it wrong this year, are the forecasters more bullish on the outlook for housing? Doesn’t look like it.
The Bank of Canada estimates the sector will contribute nothing to growth next year, before becoming a drag in 2019. Economists are now predicting that 2019 will be the worst year for housing starts since the recession.