Builder Confidence Reaches Record Highs, Though Supply Chain and Labour Challenges Persist: Results from Q4 of CHBA Housing Market Index
OTTAWA – January 31, 2022 – Builder confidence reached a record high in the 2021 Q4 results of the Canadian Home Builders’ Association (CHBA) Housing Market Index (HMI), released today. But while builder sentiment is rising, likely foreshadowing a strong spring sales quarter coming up, a look into the other HMI data reveals continuing challenges with the supply chain and labour availability, which is increasing construction costs and causing delays in home completions. These challenges, combined with a lack of land availability, are reducing the industry’s ability to bring still more much-needed housing supply online.
Launched last year, CHBA’s HMI is a residential construction industry sentiments indicator for both the single-family and multi-family markets in Canada, providing a leading market indicator before permits and starts. It is released on a quarterly basis.
The 2021 Q4 HMI for single-family builders is 84.9 and the multi-family HMI is 87.1, which is the highest sentiment for both categories since CHBA started collecting the data in Q1 2021. Until the fourth quarter, quarter-to-quarter sentiment in 2021 had been declining due to a number of uncertainties in the housing market (such as supply chain disruptions, material costs, changes to the stress test, and another wave of COVID-19). The reduction of some of those uncertainties and continued homebuyer activity have resulted in a positive shift in sentiment, which is consistent with the incredibly strong housing starts and building permits data over the past few months.
While sentiment is rising, the HMI data shows that many challenges remain which are impacting the cost and supply of homes for Canadians. Overall construction costs continue to go up, rising another 13% from what was reported in Q3, and resulting in a staggering $68,000 increase on 2,484 sq. ft. home since prior to the pandemic. Lumber prices are back on the rise and account for half of that increase, but it’s other material costs that have seen the biggest jump, with over 70% of HMI panelists saying that those costs have risen by more than $20,000, compared with 33% of respondents in Q3, indicating the issue is becoming more widespread. The average increase for non-lumber material costs is now $33,768 for a 2,484 sq. ft. home.
Closings are also being affected, with supply chain issues and labour shortages growing and resulting in an almost 10- week delay in home completions, up 3 weeks from Q3. Throughout most of 2021, appliances and windows were the major supply chain hold-ups. Respondents are now indicating that plumbing components are being hit the hardest, though appliances and windows remain close behind, along with a long list of other products and materials.
The above issues, combined with price volatility, have resulted in 64% of builders indicating that they are delaying some pre-sales and/or development. This comes during a time when lack of housing supply is a critical issue throughout Canada. And while the supply chain issues are expected to begin easing in 2022, the labour shortage will need to be addressed through government action to begin to turn around.
Another key housing supply issue flagged by the HMI will need government action as well: 63% of builders indicated that the overall supply of developed lots in their area is Low to Very Low. All three levels of government need to engage to remove barriers to increasing housing supply (like permitting delays, zoning issues, NIMBYism and more) on an urgent basis.
For more information on CHBA’s HMI, including the detailed methodology and key takeaways, please visit the official CHBA HMI webpage.
Journalists wishing to interview Kevin Lee, Chief Executive Officer of the Canadian Home Builders’ Association are encouraged to submit their request by email to email@example.com.
About the HMI
CHBA’s Housing Market Indicator (HMI) provides a much-needed leading indicator about the current and future health of the residential construction industry in Canada. It is the only sentiments indicator for the sector in the country and has been modelled on the very successful and influential American version delivered by the National Association of Home Builders’, which is used regularly by financial analysts, the Federal Reserve, policymakers, economic analysts, and the news media. Through the CHBA HMI, CHBA is doing the same for Canada. The CHBA HMI is released on a quarterly basis, providing a regular litmus test for the residential construction industry, which is one of Canada’s largest employers and whose health is critical to the overall Canadian economy.
To deliver the HMI, CHBA surveys an exclusive expert panel made up of single-family and multi-family builders from across Canada that reflect market conditions across the country. Panel participants are asked to rate market conditions for the sale of new homes at the present time and in the next six months as well as the traffic of prospective buyers of new homes. HMI numbers are not seasonally adjusted. Over time as more data is collected, the HMI will indicate trends in the market and will likely be able to predict housing starts six months in the future.