New home construction rose while home sales came down in May

The annual rate of new home construction was up in May, while home sales were slightly down, according to data released separately on Monday by the Canada Mortgage and Housing Corporation and the Canadian Real Estate Association.

Referred to as housing starts, new home construction was up 10 per cent in May compared to the previous month on a seasonally adjusted basis, according to the CMHC.

There were 264,506 units built that month, up from 241,111 in April, the housing agency said. Most of the increase came from multi-unit starts (e.g. condos), which rose 13 per cent in the month. Single-unit starts rose two per cent during the same period.

Montreal and Toronto drove the increase in new home construction — logging a 104 per cent and 47 per cent increase, respectively — though the pace of construction slowed in Vancouver, falling 32 per cent from April.

While the growth is “good news for housing supply, we do expect downward pressure on starts through the rest of 2024,” said CMHC chief economist Bob Dugan.

BMO senior economist Robert Kavcic wrote that the May numbers signalled “a robust level of building activity.”

“As it stands now, the number of units under construction is trending near record highs in absolute terms, and matching the 1970s building boom relative to the size of the adult population,” Kavcic wrote.

Will rate cut lead to sales rebound?

Meanwhile, home sales fell by a slight 0.6 per cent in May compared to the previous month, according to CREA. There was an 0.5 per cent increase in newly listed properties.

The Bank of Canada recently cut its key interest rate by 25 basis points. Some economists expect that lower interest rates will push more prospective homebuyers back into the housing market, while others are more cautious.

“The resale housing market was subdued across much of the country in May ahead of the first Bank of Canada rate cut of this cycle,” wrote Kavcic.

“The Bank will surely have eyes on how conditions evolve post-cut, but so far there has been little to suggest a significant rebound [in] activity or prices.”