After slipping by 2.6% in July, homebuilding activity bounced back in August to slightly above 150,000 units. While still subdued, this was the largest number of starts in 8 months. The increased pace of residential construction activity was led by the urban multiple unit segment, (+23.8%), but was still broadly based. Starts of urban single units also rose (+2.5%) from the month prior.
Furthermore, each of the five regions of the country participated in the uptick in activity. Most notably, starts in urban B.C. surged by 6,000 units (+56%) and by 5,000 units (+14%) in Ontario. Vancouver led the nation with a jaw dropping 84% surge, while starts in Toronto were 20% higher. Note that the increase in Vancouver comes on the back of a rock-bottom level of activity averaging only 6,000 starts over the previous 5 months - compared to around 20,000 starts in mid-2008. While overall national starts remained nearly a third below their year-ago levels, the August data confirm that the trough in activity is behind us and that homebuilding is slowly turning the corner. The slippage in July had cast a bit of doubt on this notion. While starts averaged below 130,000 units in the second quarter, the current third quarter pace stood at 142,300 units as of August. The actual monthly low point in housing starts would have been in April when they fell below 120,000 units. On a more reliable 3-month trend basis, starts touched bottom in June at 128,000 units. Since then, they have been on a gradual path to recovery and the latest 3-month average stood at nearly 141,000 units in August. With a lag, the melioration in homebuilding activity is taking its cue from the strong and speedy recovery in sales and prices seen in existing home markets since the beginning of the year. Existing home sales have not only recovered since hitting a low in January, but their 60% surge since then puts them on pace to beat some of the lofty pre-recession levels. While a recovery in starts is indeed taking hold, its pace is more measured as we anticipated. This is consistent with what most other economic indicators are saying, which is that activity likely reached a trough in the late days of summer. Alongside, construction employment seems to have stabilized and is contributing to the overall employment stabilization seen at the national level over the last few months. While the full extent of the strength of the rebound in existing home markets is not expected to carry through to new home markets, a level of starts in the 140,000-160,000 units range can be sustained through the second half of this year. As such, residential construction can be expected to continue contributing modestly to overall growth during this economic recovery phase.