Positive news in builders’ economic update
Consumers still want to spend, says report, as building permits continue upward trend
By Desi Auciello, President of the Greater Toronto Home Builders’ Association-Urban Development Institute
Each month, we builders get a private economic newsletter from the Canadian Home Builders’ Association.
The update, authored by Peter Andersen of Andersen Economic Research Ltd., tells it like it is, for better or worse.
The November issue of the Canadian Housing Industry Economic Update hit my desk this week and I was very pleasantly surprised with Andersen’s insider advice on the state of the economy and the housing market.
Under the headline “Positive Consumer Fundamentals,” Andersen states that “Canadian consumers are still in a spending mood, even in Ontario, and this is good news for discretionary spending on big-ticket items such as housing and renovation.”
Andersen attributes the upbeat mood to the combination of solid wage gains and declining inflation, with average hourly wages up 3.4% year over year, well above the increase in the consumer price index (0.7% year/year).
Declining oil prices also weigh heavily in Andersen’s estimation.
Andersen reveals that this robust consumer confidence is being expressed in a whopping 13.5% year/year increase in home centre and hardware store sales.
Meanwhile, GTA new home sales through the first nine months of the year are running at an annualized rate of 41,110 units (Source: Will Dunning Inc.) compared with 42,629 actual sales (Source: RealNet Canada Inc.) in 2005.
Turning to mortgage rates, Andersen acknowledges that they have been volatile, with two cuts in September followed by an increase in October.
He states, however, that regardless of the official published rate, currently 6.8% for a five-year mortgage, the actual rate can go as low as 5.14% depending upon your negotiation skills and leverage.
“This discounting has a big effect on affordability, especially in Ontario markets where new house price increases have been moderate,”Andersen says.
“A $300,000 mortgage with a 25 year amortization and a 5.14% annual rate would require monthly payments of $1,778, which is approximately $300 per month less than what the posted rate would imply.”
Looking ahead, Andersen feels that there is a good chance that both the U.S. and Canada will keep interest rate increases on hold through all of 2007.
“There is even a possibility that the U.S. could cut its interest rates by 25 or 50 basis points next spring,” he says.
The Bank of Canada is expected to take a similar approach with the end result being “a period of relatively stable interest rates for Canada’s new home builders and renovators.”
Looking at specific market indicators, Andersen notes that housing starts (the commencement of construction of a new home or condo) are up 3.9% so far this year, while building permits (the leading indicator) are running about 10% higher.
“Starts, therefore, seem to have trouble keeping up with sales and permits, which means there are a lot of starts (read jobs) still in the pipeline,” he says.
“Residential permits have actually been on an upward trend for several months. Single-family permits show three consecutive monthly increases. In the latest month, the largest increases in residential permits were in Ontario and British Columbia. Ontario housing permits reached their highest level since January.”
Do you have a question about the home building industry? Email Desi Auciello, president of the Greater Toronto Home Builders’ Association-Urban Development Institute at president@gthba.ca or fax 416-391-2118. The views expressed here are those of the GTHBA-UDI president.
———————————————————————————
Contact the Jeffrey Team for more information
