Housing starts rise in November…but are gains sustainable?
CMHC today released their preliminary housing starts data for November. After the substantial drop in October’s numbers, today’s numbers have shown surprising strength.
“The seasonally adjusted annual rate of housing starts was 187,200 units in November, according to Canada Mortgage and Housing Corporation (CMHC). This is up from 167,800 units in October.”
But as always, the devil is in the details.
“Housing starts moved higher in November primarily due to a strong increase in urban multiple starts in Ontario,” said Bob Dugan, Chief Economist at CMHC’s Market Analysis Centre. “The increase in housing starts in Ontario in November was more than enough to offset declines in all other regions of the country.”
Note that EVERY other category was down month over month except for the Ontario urban category. The less volatile single units measure for Ontario posted solid gains which could arguably be construed as sustainable. It was in the volatile multi-units where the gains are clearly a one-off event, coming in at a 137.2% increase.
Evidently the already overbuilt condo market in Ontario (Toronto in particular) is going to see more supply in the pipelines. How nice!
Had the likely one-off increase in multiple unit starts come in at anywhere near the averages of the past few months, the total housing start numbers drop ower than last month’s totals.
As RBC noted in their economic update, “On the surface, today’s reported surge in housing starts in November appears to provide evidence of an improvement in the residential real estate market; however, without the unsustainable strength recorded in Ontario , the report suggests that construction activity remains under considerable pressure in the fourth quarter of 2010. We expect that residential investment will ease in 2011 as the housing supply adjusts to cooling demand before stabilizing at levels that are closer to long-term averages.”
It will be interesting to see where housing starts go from here, but I highly doubt these numbers will be replicated going forward. Neither does TD, who had the following to say:
“The surge in housing starts in November was almost entirely due to the volatile Toronto multi-unit sector, and as a result, some of the gains will likely be reversed in the coming months.”
More thoughts on the potential bubble in China
Hat tip to my most loyal supporter, Mac for pointing out this gem:
“Many see China’s monetary tightening as a pre-emptive tap on the brakes, a warning shot across the proverbial economic bows. We see it as a potentially more malevolent reactive day of reckoning,” said Tim Ash, the bank’s emerging markets chief.”
“China is trying to keep the game going as if nothing has changed, but cannot do so. It dares not raise rates fast enough to let air out of the bubble because this would expose the bad debts of the banking system. The regime is stymied.”
“The result of such a hard landing would be a 20pc fall in global commodity prices, a 100 basis point widening of spreads on emerging market debt, a 25pc fall in Asian bourses“
Ouch! So a hard landing in China may cause a revaluation of non-monetary commodities by 20% as well as knock down Asian stocks by 25%. What might the effects be on the commodity-heavy TSX? On the value of our commodity exports?
Speaking of that pre-emptive tap on the brakes by the People’s Bank of China, ZeroHedge is speculating that the next interest rate hike may be as soon as this weekend.
“Last Friday the Political Bureau of the Communist Party of China Central Committee, the highest decision-making body in China, said the government will shift to a “prudent” monetary policy next year from a “moderately loose” policy currently.
Economists widely expect Beijing to hike rates again before the end of the year, given surging prices.”
If true, next week may be a bit of a wild ride for the commodity complex and the TSX by extension.