Canadian Housing Starts Fall 16% in August — A Sign of Builder Caution

Canada’s homebuilding sector slowed sharply in August, with housing starts falling 16% compared to July. The decline, reported by the Canada Mortgage and Housing Corporation (CMHC), points to growing caution among developers as higher costs, weaker demand, and financing challenges weigh on new projects. For homebuyers and mortgage seekers, the drop signals potential supply constraints ahead and may affect affordability trends.

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A Steep Monthly Decline

According to CMHC, the seasonally adjusted annualized rate (SAAR) of housing starts dropped to 245,791 units in August, down from a revised 293,537 units in July. Economists had forecast a smaller pullback to around 277,500 units, making the actual drop sharper than expected.

CMHC highlighted that while monthly numbers can be volatile, this decline is significant. The six-month trend measure, which smooths out fluctuations, rose slightly to 267,259 units, up 1.6% from July. This indicates that despite August’s steep fall, activity over the broader period has not yet collapsed.

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Regional Performance

The slowdown was not uniform across the country.

• Vancouver recorded a 46% year-over-year increase in starts, driven by both single-detached and multi-unit projects. This suggests strong demand remains in British Columbia’s largest market, despite broader headwinds.
• Montreal saw a 32% jump in housing starts compared to last year, largely due to multi-unit construction.
• Toronto, Canada’s largest market, was essentially flat year-over-year. Analysts say higher financing costs and tighter municipal permitting may be holding back new projects.
• Rural Canada showed stable performance, with about 22,000 units on a seasonally adjusted basis.

Nationally, for centres with a population of 10,000 or more, actual housing starts in August reached 18,408 units, compared to 16,775 units a year earlier — a 10% gain. This illustrates the divergence between the short-term SAAR decline and longer-term resilience.

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Why Builders Are Pulling Back

Several factors are weighing on homebuilding activity:

1. Financing Costs: Developers face higher borrowing costs even as the Bank of Canada prepares to cut rates. Commercial construction loans remain expensive, discouraging some projects.
2. Weaker Confidence: With GDP contracting in the second quarter and unemployment rising, some developers may be bracing for softer demand.
3. Supply Chain Pressures: Material and labour shortages remain an issue, particularly for multi-unit projects.
4. Policy and Regulation: In cities like Toronto, developers face zoning restrictions and lengthy permitting processes that slow down project launches.

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Implications for Mortgages & Homebuyers

For Canadian borrowers, the housing start slowdown has direct and indirect effects:

• Future Supply: If fewer homes are being built now, future supply will tighten, potentially keeping prices elevated in markets with strong demand. For first-time buyers, this means affordability challenges may persist.
• Variable Mortgage Rates: The Bank of Canada is expected to cut its benchmark rate by 25 basis points this week. For those with variable-rate mortgages, payments could ease, offering some relief even as housing supply shrinks.
• Fixed Mortgage Rates: Fixed rates depend more on bond yields. With the economy slowing and housing construction weakening, yields may soften, leading to slightly cheaper fixed mortgage options.
• Renewals: Homeowners with mortgages up for renewal in 2025 may benefit from a more competitive environment if rates edge lower, but tighter housing supply could sustain strong property valuations.

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Risks to Watch

• Extended Slowdown: If the monthly decline continues into the fall, it may indicate a more structural pullback in Canada’s construction sector.
• Regional Gaps: While Vancouver and Montreal show strength, Toronto’s flat performance highlights uneven market health.
• Policy Response: The federal government recently announced Build Canada Homes, a new agency with C$13 billion to accelerate affordable housing. Whether this initiative offsets the slowdown remains to be seen.
• Economic Outlook: If Canada’s labour market continues to weaken, household incomes could come under pressure, further affecting housing demand and mortgage repayment capacity.

The 16% drop in housing starts in August is a warning sign that developers are becoming more cautious. While the six-month average shows resilience, the sharp monthly pullback raises questions about the strength of Canada’s housing pipeline.

For homebuyers and mortgage seekers, the picture is mixed: lower interest rates may provide relief on borrowing costs, but tighter new-home supply could keep prices high in key urban centres. As the Bank of Canada prepares to cut rates, the balance between affordability and availability will be the key story heading into the fall.