The focus of this column is housing starts, which are a key indicator of real activity in the new home construction market. As Canada's national housing agency, CMHC releases monthly statistics on housing starts across the country and provides a detailed breakdown for all major metropolitan areas. I will touch on how other aspects of the housing market influence trends in new home construction in the Toronto area.

So, what's happening with housing, particularly new home construction in the Toronto area? The short answer is that, while new home construction is at above-average levels, it is trending downward and housing starts are below last year's levels. Two key factors have influenced the decline of housing starts in this area: more choice in the resale market and higher home prices.

More Choice for Buyers We've heard industry professionals use such terms as "seller's market" and "balanced" to describe the demand and supply conditions that summarize the state of the existing home market and the degree of upward pressure on home prices. These conditions in today's home market can spill over into new home prices and ultimately affect construction levels.

In a sellers' market, the number of existing home sales (demand) is higher than usual compared with the number of homes listed for sale (supply). Buyers are faced with less choice and a strong inflation of home prices usually results. In such circumstances, homes listed for sale sell faster than usual, multiple offers for homes (i.e., bidding wars) may be encountered and home shoppers have to make quick decisions. Faced with tight market conditions, many buyers look to the new home market to find a house that more closely fits their needs.

In the greater Toronto area, sellers' market conditions have prevailed since the mid-1990s and new home construction climbed steadily on an annual basis, reaching a peak in 2003.

In 2003, resale market conditions in the Toronto area, while still hot, moved a bit closer to the threshold of a balanced market as existing home listings began to outstrip sales. Buyers had a greater supply of homes from which to choose and many opted to purchase a resale home. As a result, interest in certain segments of the new home market started to wane, especially in relation to the more expensive single-detached homes. This caused housing starts in the greater Toronto area to edge lower.

Prices Affect Home Types in Demand The demand for home ownership has remained strong since the mid-1990s. Prices have increased steadily throughout that period. Generally speaking, single-detached homes are the most expensive.

The impact of rising new home prices has been twofold. First, new home construction has declined as buyers have turned to the resale market, where homes are less expensive. Second, there have been more purchases of less-expensive home types, especially condominium apartments. As a result, the number of single-detached home starts has declined.