Homebuilder sentiment is continuing to plunge
Recent Bank of Canada interest rate cuts have spurred hopes that a mortgage market revival could be in the cards – but homebuilders aren’t seeing much room for optimism on the horizon at present.
Builder confidence across the country continued to plunge in the second quarter of the year, according to the Canadian Home Builders’ Association (CHBA), whose latest survey on sentiment in the construction sector showed a generally glum outlook among homebuilders.
In July, the number of months of inventory available was unchanged from the previous month, hovering at 4.2, but buyers are unlikely to see a substantial improvement in new supply to choose from in the months ahead, according to CHBA chief executive officer Kevin Lee (pictured top).
He told Canadian Mortgage Professional that “lots of policy improvement” is required to significantly move the needle on the sluggish pace of housing starts across Canada. “There’s more that can be done on the mortgage rule side of things,” he said. “Some of the big things… that need to be changed are getting more supply online and making that possible through changes to zoning and permitting at the municipal level.”
Surging development taxes over the past 25 years have only worsened the affordability crisis facing Canadians striving to purchase a home, Lee argued, with those charges needing “to not just be frozen, but to come down dramatically” to improve the outlook.
That will require a concerted effort at various levels. “We need a new model that will find another way to fund additional infrastructure and those kinds of things that municipalities are relying on new homebuyers to buy,” Lee said.
“It’s just not fair and it doesn’t work, and it’s why we can’t get supply online. So there’s a lot more to be done. It’ll take a comprehensive effort from all three levels of government, and we’re just at the start of that.”
. A recent survey conducted by Royal LePage, conducted by Hill & Knowlton, revealed that 84% of Canadian adults in Generation Z and younger millennials consider homeownership a good investment.
— Canadian Mortgage Professional Magazine (@CMPmagazine) August 23, 2024
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Ontario, British Columbia homebuilders especially pessimistic
Builder sentiment towards both the single-family and multi-family spaces remains poor, with the single-family HMI sliding by 10 points year over year in Q2 and the multi-family outlook slipping by 8.5 points.
In Ontario and British Columbia, the two priciest provinces for housing in Canada, builder confidence in the single-family segment sat at just 11.6 and 17.8 respectively in the second quarter of the year.
That “abysmal” reading for Ontario reflects a complete lack of market activity in the province and especially in the Greater Toronto Area (GTA), Lee said, a fact that’s likely to weigh down on homebuyer prospects for the foreseeable future if action isn’t taken.
At present, a solution to that crisis is nowhere in sight. “Everybody knows that Ontario has the largest housing deficit,” Lee said, “and we’re not going to [improve that] at this rate. In fact, it’s getting worse right now.”
Is there any room for optimism looking ahead?
The federal government has recently launched an initiative to develop affordable housing on federal lands, with 56 properties currently listed as suitable for residential construction.
Other measures aimed at alleviating the national housing crisis include the Housing Accelerator Fund, a multibillion-dollar program used by the government to negotiate with municipalities and streamline approaches to permitting and zoning.
The recent fall in interest rates – and the likelihood that borrowing costs will continue to tick downward in the months ahead – has also sparked hopes of a less fraught environment facing homebuilders for the remainder of this year and 2025.
Still, those improving conditions alone are unlikely to make a significant dent in the housing supply shortage, Lee said. “The start of these policy changes is a step in the right direction. At least the problem is hugely recognized, which it wasn’t previously,” he said, “and the discussions that are underway about development taxes and those types of things need to continue.
“With the discussions underway, it’s possible that it will lead to change. So we’re in a hopeful wait-and-see mode right now and hopefully the interest rates will come down. But as we’ve been saying, it’ll take more than interest rates coming down to really turn the corner and get going.”
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