Canada's once-sizzling housing market continues to fall back to more sustainable levels, but as yet is managing to avoid the earmarks of a damaging crash that would spill over into the general economy.
The latest data on housing starts from Canada Mortgage and Housing Corp. shows construction fell to 15,390 for a seasonally adjusted annual rate of 174,858 units in April, moderately lower than the upwardly revised 181,146 recorded in March.
The dip was concentrated mostly in Ontario, British Columbia and Atlantic Canada and mostly came in the condo market.
"Canadian homebuilders are facing the new reality that the decade-long housing boom has ended, and are retrenching in orderly fashion," said Sal Guatieri, a senior economist with BMO Capital Markets.
"They are cruising below annual household formations of about 185,000, reducing the risk of a supply glut now that demand has slackened."
TD Bank economist Sonya Gulati noted the long-held concerns about Canada's housing market, particularly from the International Monetary Fund and the Bank of Canada, but said the recent trend should ease some of the fears. Even when the market was overheating, she said, that was mostly due to the influence of Toronto and Vancouver and not widespread.
But some housing hawks are still not convinced. Scotiabank economist Derek Holt said the softness in April, historically a heavy month for construction, may portend even greater weakness to come.
"To what extent are soft existing home sales spooking developers? That question is more important now that we're entering prime Canadian construction season," he said.
Capital Economics' David Madani said he believes a housing correction is underway, saying the slump in pre-construction condo sales and fewer project launches "indicate that this seemingly mild slowdown will eventually worse." He warned if he is right, the fall in housing investment will severely constrain economic growth.
Most analysts also see housing as a drag on the economy this year, but in more moderate proportions.
Most if not all housing indicators — starts, resales, building permits and prices — have cooled considerably since July 2012 when Finance Minister Jim Flaherty's new tighter regulations for mortgages and lending practices went into effect.
Last month, Bank of Canada governor Mark Carney told a parliamentary committee that all indicators were moving in the right direction and that household debt accumulation had stabilized, albeit at an extremely high level of 165 per cent of disposable income.
April starts were on the mark with economist expectations and slightly below the first quarter average.
The seasonally adjusted annual rate of urban starts was down 2.5 per cent, led by a 3.5 per cent decline in multiple urban starts. Single urban starts remained relatively unchanged from March.
Regionally, starts fell by 41 per cent in Atlantic Canada, 15 per cent in Ontario and six per cent in British Columbia.
Offsetting the losses, starts rose by 15 per cent in Quebec and nine per cent in the Prairies.