Investment trends will be a major factor in near-future shifts, the bank says
RBC Economics has projected a “sharp fall” in new housing starts later this year as investment tapers off, with the slowdown to be apparent until at least Q3 2022.
Data from the Canada Mortgage and Housing Corporation showed that the six-month moving average of Canadian housing starts has been on an upward trajectory in the last few months, posting a trend of 278,462 units in April and then 280,779 units in May.
In a recent analysis, RBC predicted that the starts trend will fall to 258,000 by the end of the second quarter, representing a 15.4% downturn from Q1. The seasonally adjusted annual rate (SAAR) of starts for the whole of 2021 will likely settle at 256,200 units, a marked drop from the peaks earlier this year despite being 18.22% higher than 2020’s total starts.
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By the third quarter of next year, starts will likely shrink further to 194,000 units, fully 36.39% lower than the frenzied building activity seen during Q1 2021. RBC projected that the SAAR for the whole of 2022 will be at 199,500 starts, a 22.13% year over year decline.
The forecast comes in the wake of RBC CEO Dave McKay calling on the federal government to take more concrete steps when it comes to housing supply.
“We support recent actions taken by regulators to adjust mortgage stress tests to take some pressure off the demand side of the equation, but we encourage policy-makers to also address the problems of limited supply, which are exacerbating house price inflation,” McKay said recently.
