Tag Archives: canadian home builders
Toronto and Canada Housing Forecasts Getting Rosier
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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The long shadow over Canada’s housing market
Steve Ladurantaye – Globe and Mail
Wake up, Canada: The house party is over.
A wide range of indicators say Canada can no longer count on a booming housing market to keep the economic blues at bay. But in the quarters where it most needs to be heard, the message is not resonating.
Many policy makers have yet to adjust their view of a market that just last spring was helping the economy rebound from the recession. Sales of existing homes were setting records month after month; a generous tax credit had encouraged the masses to take on renovation projects; new home starts were hitting all-time highs.
Victor Fiume, president of the Canadian Home Builders’ Association, remembers speaking at a meeting of municipal leaders at the height of the boom. “They were bouncing down the stairs with excitement about what it meant to their tax base.”
Many of them are still holding on to those hopes, even as the market slows.
“Now they’re looking at me like I have two heads,” Mr. Fiume, who is also general manager of Durham Custom Homes in Oshawa, Ont., says of the local politicians. “They find it very difficult to believe we can come to such an abrupt halt.”
The trouble is not that Canada is on the brink of a gruesome real estate bust like the U.S. – because it isn’t. It has been shielded by more cautious lending practices, and avoided such bad practices as zero-down-payment or no-documentation mortgages. With few exceptions, Canadians have equity in their homes.
Mortgage defaults are minimal. Housing speculation never reached the absurd levels that it did in such Sun Belt states as Nevada and Arizona, and the federal government has taken steps to ensure that it never does, in part by requiring much higher down payments for investment properties. There is a lot that is good about the structure of the Canadian property market.
But a period of stagnation or slowly falling prices, coupled with weak home sales and waning construction activity, would cut off one of the engines that drove impressive economic growth and job creation in the years before the 2008 financial crisis.
This week, when the Bank of Canada released its latest report on the domestic economy, it specifically mentioned the prospect of “a more pronounced correction in the Canadian housing market” as one of three key risks.
The primary reason for that, of course, is the mountain of debt carried by many Canadian households, which has worried the central bank governor for many months. Toronto-Dominion Bank said this week that Canadians will soon owe more than $1.50 for every dollar of disposable income, an unprecedented level. And home prices are already stretched far beyond their historical norms, particularly in the largest urban markets such as Vancouver.
It all adds up to a simple, unpleasant equation: High debts, plus high home prices, plus high unemployment, plus slow growth in incomes, equals a housing market that’s much different than the one Canadians are used to. Is it any wonder that, after 10 years of explosive growth, the housing market appears out of gas? Sales fell by as much as 45% in the country’s largest cities over the summer and haven’t recovered through the traditionally brisk fall market.
That means the summer effectively wiped out a year’s worth of gains, with the average resale price back at year-ago levels. New construction fared little better, with the seasonally adjusted rate of starts falling to 186,000 in September from April’s peak of 201,900.
That has dramatic implications for employment and consumer spending levels – and for an economy that has grown accustomed to relying on housing-related spending for about 20% of its gross domestic product.
“Canada doesn’t need a U.S.-style problem to have a problem,” said Alexandre Pestov, a market analyst at Three Bears Research in Toronto. “A Canadian-style issue will do just fine.”
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Contact the Jeffrey Team for more information - 416-388-1960
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Rush to beat harmonized sales tax skewed home sales figures
Richard Gilbert – Daily Commercial News and Construction Record
The fall in Canadian home sales in July was driven by declining sales in British Columbia and Ontario after the implementation of the harmonized sales tax (HST).
“Because of the hype that was going on, there was pent-up demand and people were rushing to buy homes before the deadline,” said M.J. Whitemarsh, chief executive officer of the Canadian Home Builders’ Association of British Columbia.
The B.C. and Ontario governments harmonized the provincial sales tax (PST) with the federal goods and services tax (GST) on July 1. The HST created a single combined sales tax rate of 12% in B.C. and 13% in Ontario.
The Canadian Real Estate Association reported that seasonally adjusted home sales through its MLS service across the country were down 6.8% in July compared with June.
The report found that declines in British Columbia (14.1%) and Ontario (8%) accounted for 85% of the change in national activity in July.
Peter Simpson, president and chief executive officer of the Greater Vancouver Homebuilders Association, said a number of factors are responsible for the decline.
“People did accelerate their decisions because the HST was coming in. The builders worked very hard to deliver houses before July 1.”
National sales activity was 30% lower in July 2010 compared with last year’s record July.
However, year-to-date transactions are still up 5.6% compared to the first seven months of last year.
This gap is expected to continue to shrink as the year progresses, since activity rose sharply over the second half of last year, reaching levels that are unlikely to be matched in the final five months of 2010.
“The sales process has also slowed because it is taking the builder and the sales office longer to explain how HST will be applied,” said Whitemarsh.
“There is a misconception. People did not understand it and people think there is HST on the resale of housing. This may exacerbate the problem that is already there.”
TD economist Grant Bishop agreed that the implementation of the HST in Ontario and B.C. has reduced sales substantially.
He said existing homes sales are not directly taxed, but some buyers rushed to buy them under the mistaken impression that HST applied, thus helping to push up prices.
“With housing 10–15% overpriced, we expect a downward correction of nearly 10% in the monthly average prices, followed by several years of stagnation of price growth at the rate of inflation, in order to bring Canadian house prices back to balance,” he said.
Comment: Hogwash!
The HST increased the cost of a new house worth more than $525,000 in B.C. and $400,000 in Ontario.
When the tax was initially proposed in B.C., the threshold was also $400,000.
“We told the provincial government that $400,000 was a ridiculous threshold,” said Simpson.
“In the end, the threshold was increased to $525,000, which did help.”
Both Simpson and Whitemarsh want the government to find ways to mitigate the impact of the HST.
To begin, they would like the $525,000 threshold linked to the housing price index.
Simpson said he would also like first time buyers to get an exemption from the property transfer tax.
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Contact the Jeffrey Team for more information - 416−388−1960
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