Each month, our local home builders’ association receives several market intelligence reports from the Canadian Home Builders’ Association. This month’s newsletter contained a number of items that I thought would be of interest to new-home buyers in the GTA.

Economic Update

Dr. Peter Andersen, CHBA’s consulting economist, notes that this year will be much busier than expected for construction activity of all types. Housing starts have surged and residential construction has picked-up again. Non-residential construction, always a second-half cyclical performer, is in a solid expansion. A strong office leasing market and a declining office vacancy rate are signaling the onset of an office tower construction cycle.

Housing starts averaged 248,000 at annual rates in the first quarter – an increase of 17% from the same period a year earlier. This is far above the 2005 housing starts total of 225,481 units and also the annual cyclical peak of 233,431 units set in 2004.

The March starts figures were striking – 252,300 at seasonally adjusted annual rates. The first-quarter surge reflected both single-detached and multiple-unit starts. Housing start forecasts for 2006 are being revised upwards as a result of the monthly performance through the first three months of the year.

The resale market is always a good indicator for new-home demand. It is still hot and shows no sign yet of affordability stress. First-quarter sales were at an all-time record high, after adjusting for seasonality. Sales of existing homes and condos in March continued at close to record levels. This is also good news for renovation demand as the stimulus to renovation from resale housing activity, which works with a lag, shows no sign of slowing down. The national average resale price in March in major markets was up by 11.5% year over year.

RBC affordability index

High home prices and utility costs in the last three months of 2005 pushed home affordability to its highest level in 10 years, according to the Royal Bank of Canada.

RBC’s affordability index measures the proportion of pre-tax household income it takes to service the costs of owning a home. Despite the fact that incomes continue to rise, this increase does not match the hikes in mortgage rates, house prices and utility costs.

Income growth in Canada is starting to accelerate, wages are rising, but the increase in house prices has been faster. Add to it higher interest rates and overall size of rising mortgages, so affordability is going down.

Vancouver and Calgary were hit the hardest as housing prices soared in the last quarter of 2005. Affordability is expected to get worse in the first half of this year, but should level off by year’s end.

Labour shortage

The construction industry is concerned after hundreds of construction workers from Portugal and other countries have been deported as the new Conservative government moved away from Liberal government promises of an amnesty plan.

Promises of an amnesty gave hope to underground workers who came forward to file refugee claims as a result. Their attempts to stay in the country legally ended up getting many of them deported. Canada’s current immigration system is tailored to educated immigrants, and blue-collar workers often do not qualify.

“This is insanity,” says immigration lawyer Lorne Waldman. “We have an immigration system that is supposed to supply workers for jobs, but these blue-collar workers who are needed cannot qualify to get in.”

There is a major labour shortage in the construction industry – an industry that accounts for 9.5% of Canada’s total gross domestic product and 7.5% of Ontario’s alone. It is estimated that there are between 10,000 and 15,000 illegal immigrants working in southern Ontario’s construction and hospitality industries, and 200,000 undocumented workers across the country. Deportations are therefore a major threat to the construction industry.

The Canadian Home Builders’ Association wrote a letter to Immigration Minister Monte Solberg, supporting the work foreign workers do in the homebuilding industry and urging him to resolve the labour shortage.

Solberg says the government is working with the provinces to ensure labour needs are met. “We understand the process doesn’t work well for a lot of people. We’re trying to fix that. The ideal situation is for people to go through the process.” He ruled out an amnesty, he said, because he doesn’t want to encourage people to come to Canada illegally.

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Contact the Jeffrey Team for more information – 416-388-1960

Canadian Home Builders

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