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Housing & GDP Growth

Canadian new housing construction is slowing rather quickly, not only are new permits off by nearly 9.2% from their September numbers, these numbers were also revised downward.  Primarily, it is cities that were affected, but then since they account for nearly 90% of all construction anyway… The worse affected region was Ontario (down ¼) followed by the prairies, while Eastern Canada did ok (flat or up).
 
Canada’s peak in new housing construction occurred in the early spring, and is consistent with a slowing economy.  Mortgage rates in Canada are still very lower – in Canada mortgage are set for a 5 year period after which rates are reset, there are no 30 year fixed mortgages in Canada. 

Some home truth here are that construction was outpacing potential demand for the better part of 2009 and early 2010, so the drop off is just a re-adjustment to more reasonable levels.  Canada requires nearly 200k new homes, but production was far above that level in 2009.  When the government puts expiry dates on policy shifts (BoC rate increases and more restrictive mortgage rules from CHMC, not to mention the introduction of the HST in B.C. and Ontario), the writing was on the “housing” wall in Canada. In effect the Federal government with the BoC brought forward two years of housing activity into nine months and it is payback time. I expect residential construction to negatively contribute to growth over Q4/2010 and Q1/2011 at the very least. 


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