Affordability challenges continue to stem from rate increases and elevated construction costs
Low confidence in the Canadian builder sector has improved slightly during the second quarter, but the lack of buyers is still affecting overall industry sentiment and housing starts, according to the Canadian Home Builders’ Association (CHBA).
“A pause from the Bank of Canada on increasing interest rates between late January and June of this year – allowing buyers time to adjust to the new financing environment – along with the spring buying season, was supportive of improvement in builder sentiment, though the June and July interest hikes will no doubt keep improvement muted,” the CHBA said in the latest edition of its Housing Market Index report.
Both single- and multi-family indexes remained below 50, in stark contrast to values in both metrics reaching 90 in Q1 2022, just before the BoC’s rate-hike campaign.
“The Q2 CHBA HMI for single-family builders registered 39.9, 5.6 points above 34.3 recorded in Q1,” the group said. “The multi-family HMI in Q2 was 41.0, up 7.5 points from 33.5 in Q1.”
Affordability challenges stemming from rate hikes and elevated construction costs proved to be overwhelming concerns.
The issues “have been compounded by the July rate hike by the Bank of Canada shortly after Q2 survey data was collected,” CHBA said. “Converting prospective buyers into sales remains a challenge, as do closings from previous sales. Due to the high interest rate environment, nearly half of CHBA’s panelists reported that buyers are requiring alternative lending solutions and one third said they are needing to make accommodations for some buyers so they can close.”
Canada Home Builders’ Association, Kevin Lee told Canadian Mortgage Professional that adjustments to mortgage terms & qualification criteria could have a big impact in helping spur demand and impel further home construction.https://t.co/9MgctB4jwZ#housingmarket #affordability
— Canadian Mortgage Professional Magazine (@CMPmagazine) June 22, 2023
New construction slowing down due to higher costs
Aside from slower sales, mounting costs are leading to less new construction, in turn fuelling further anxiety surrounding the supply issues plaguing Canadian housing.
As much as 67% of CHBA’s panelists said that they have been building fewer units, compared to the 59% reported in the previous two quarters. More than one in five (22%) said that the slowdown is leading to outright project cancellations.
“We need to build 5.8 million homes within the next 10 years to close Canada’s current housing supply gap,” said Kevin Lee, CEO at CHBA. “Current conditions – with construction costs rising, labour shortages, and especially the current financing conditions – are preventing that from happening.”
