The Canadian new home construction sector is facing a challenging period, as evidenced by the Canadian Home Builders' Association's (CHBA) 2024 Q3 Housing Market Index (HMI), which reveals a significant decline in builder confidence. This slump comes amid a complex market dynamic where the resale market shows signs of revival, but the new home sector struggles to gain traction.
Builder Sentiment Takes a Hit
The Canadian Home Builders' Association's (CHBA) quarterly Housing Market Index (HMI) serves as a critical barometer of the health of the new home construction market. The latest HMI data for Q3 2024 reveals a significant downturn in builder confidence, reflecting the industry's concerns about the current market conditions.
The single-family HMI has dropped to 27.4, a notable decline from the previous quarter's figure of 29.9. This drop indicates that builders are less optimistic about the market for single-family homes, a cornerstone of the Canadian housing market. The multi-family sentiment has also taken a substantial hit, falling from 32.5 to 28.5, reflecting a broader trend of decreasing optimism.
These low HMI scores are particularly concerning as they are close to the record lows seen in Q3 2023 1, a period marked by significant market challenges. The CHBA's CEO, Kevin Lee, highlights that these scores not only indicate low builder sentiment but also foreshadow a continued slowdown in new construction starts in the coming months. 1
High Mortgage Rates: A Key Affordability Challenge
The primary factor weighing on builder sentiment and new home sales is the high fixed-rate mortgages. Despite recent interest rate cuts, these mortgages remain at elevated levels, posing a significant affordability challenge for prospective homebuyers.
High mortgage rates have a direct impact on the demand for new homes. With a larger portion of their income going towards mortgage payments, buyers have less purchasing power, which in turn affects their ability to enter the new home market. This is particularly evident in the ownership segment, where housing starts for ownership homes have declined by 17% year-over-year. 1
Regional Variations in Builder Sentiment
The CHBA's data also reveals regional disparities in builder sentiment across Canada. British Columbia and Ontario are experiencing particularly low builder confidence, with Ontario seeing virtually no builders reporting positive selling conditions. 1 This is a significant shift from previous periods when these provinces were key drivers of new home construction.
In the Prairies and Atlantic provinces, builder sentiment has shifted from cautious optimism to pessimism. The Atlantic region's multi-family sector remains a bright spot, but it represents a small portion of the national housing starts, accounting for less than 5% of the total. 1
Housing Starts: A Nuanced Picture
The total housing starts data for 2024 presents a more complex scenario. While the overall number of housing starts has remained stable, this stability masks underlying shifts in the market. The decline in starts for ownership homes is a critical issue, as it directly impacts the availability of new homes for purchase.
The CHBA's HMI specifically focuses on new construction for ownership, which is a crucial segment of the market. The report highlights that while total housing starts, including rental properties, may appear steady, the decline in ownership home starts is a significant concern. 1
Policy Interventions: Addressing Affordability and Supply
The CHBA advocates for a multi-pronged policy approach to tackle the intertwined issues of affordability and supply. Kevin Lee emphasizes the need for comprehensive support, stating that while lower interest rates and other policy measures may eventually boost sales activity, additional interventions are required. 1
A key federal policy change, effective December 15, will allow 30-year amortizations on insured mortgages for first-time homebuyers. 1 This is expected to provide some relief for a segment of buyers, but the CHBA argues that it is just one piece of the puzzle. Additional measures are necessary to address Canada's long-standing affordability and supply issues.
The CHBA suggests revising the Goods and Services Tax (GST) on new home purchases, which could significantly ease the financial burden on buyers. 1 They also propose making the mortgage stress test more dynamic, allowing it to adapt to changing market conditions, ensuring that it does not unnecessarily restrict access to credit for qualified buyers. 1
Conclusion
The Canadian new home construction market is navigating a challenging period, with builder sentiment at near-record lows and sales activity stalling. High mortgage rates are a significant factor affecting affordability, particularly for ownership homes.
The CHBA's call for comprehensive policy interventions underscores the need for a coordinated approach to address the housing market's complexities. By implementing measures to enhance affordability and boost supply, policymakers can help the new home construction sector regain its footing and contribute to a more balanced and accessible housing market in Canada.
As the real estate market continues to evolve, staying informed about these trends and policy developments is crucial for industry professionals and homebuyers alike.
Sources:
1 CHBA 2024 Q3 Housing Market Index (HMI) Report
The content of this article is for informational purposes only and should not be considered as financial, legal, or professional advice. Coldwell Banker Horizon Realty makes no representations as to the accuracy, completeness, or suitability of the information provided. Readers are encouraged to consult with qualified professionals regarding their specific real estate, financial, and legal circumstances. The views expressed in this article may not necessarily reflect the views of Coldwell Banker Horizon Realty or its agents. Real estate market conditions and government policies may change, and readers should verify the latest updates with appropriate professionals.
