While the term "recession" may have applied to some sectors of the Canadian economy in the first half of the year, it certainly does not apply to Canada's housing market.
This view is strongly supported by the fact that, after exhibiting back-to-back declines in December of 2014 and January of this year, due in part to the negative impact of low oil prices on Alberta and colder than normal weather on the rest of the country, home sales have trended steadily higher since February.
Moreover, despite the very weak start, the volume of sales in the first seven months of this year are 5.4% higher than during the comparable period in 2014. In addition, year to date, home sales are up in seven of the ten provinces led by British Columbia (+21.4%), PEI (+11.6%), and Ontario (10.1%).
This relative strengthening in demand since February and indeed over the past several years has, as was recently pointed out in a speech by Bank of Canada Deputy Governor Larry Schembri, been driven by rising disposable incomes, record low interest rates, sustained strong net migration and improved credit conditions due to financial liberalization and innovation.
With respect to disposable incomes, following back to back increases of 3.4% q/q and 3.8% in the third and fourth quarters of 2014, real disposable incomes increased by 6% q/q (at an annual rate) in the first quarter of this year fuelled (literally) by a very sharp drop in energy costs during the peak heating season.
In addition, despite heightened uncertainty about the negative impact of lower oil prices on energy investment, Canada has added an average of 20,000 full-time jobs a month since the beginning of the year, more than five times the average gain of 3,400 during the first seven months of 2014.
Although cold weather in the eastern half of the country clearly depressed new construction in the first quarter, the impact of stronger housing demand appears to have given a solid boost to new construction in the second quarter.
After hitting 176,543 units in the first quarter, their lowest level since the first quarter of 2014, housing starts totalled 192,876 in Q2, their strongest print since the third quarter of 2014.
Looking forward, most of the key indicators of both housing demand and residential construction remain solidly in positive territory.
Turning first to housing demand, as noted above, the steady acceleration in average weekly wages since the beginning of the year against a background of very low inflation points to sustained growth of real disposable incomes through the remainder of the year.
Second, few analysts expect significant upward pressure on interest rates before mid 2016 and consequently, as noted in RBC's latest report, housing affordability, does not appear to be impeding purchasers in most major urban areas.
Also, although immigration moderated slightly in the first quarter, the outlook for the remainder of the year remains strong.
With respect to housing supply, despite the recent uptrend in house prices, particularly in Toronto and Vancouver, persisting low rental vacancy rates, steady upward pressure on prices and a stable pattern of months' supply of existing homes for sale should cause housing starts to remain in the range of 180,000 to 200,000 through the remainder of the year.
This implies that starts for the year will total approximately 188,000 compared to 189,000 in 2014 and 188,000 in 2013. Assuming the fundamentals remain positive, and assuming a modest easing of pent-up demand, we expect starts to total in the range of 170,000 to 190,000 in 2016.