Rising inflation rates lead to crash in new housing starts

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It’s no secret that inflation rates are rising in Canada, hitting an 18-year nationwide high earlier last week. One outcome of this rise, as reported in a recent article of the housing news outlet Better Dwelling, is that new housing starts have begun to slow dramatically. 

The phrase “housing starts” refers to homes that have started construction.  Since March, the number of residential housing starts in Canada has fallen 29% according to the Canada Mortgage and Housing Corporation. While resale purchasing remains strong, rising inflation rates and volatile material costs have given many developers pause, resulting in builders delaying half of the planned new housing developments during this period.

It may be early to hit the panic button: at the current rate, housing starts remain 9% higher than they were in 2020. The falling rates may represent a market correction in the industry which will flatten out in the coming months, instead of continuing to trend downwards indefinitely.

Is the lower rate of housing starts the canary in the coalmine for the Canadian housing market? Or will a lack of cheap cash have little long-term effect on new builds and real estate prices generally? Time will tell, but in periods of such volatility it’s important to seek experienced advice to ensure you and your clients are protected.

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