Market Still Slow Despite Slight Increase in Builder Confidence due to Plateau on Interest Rate Hikes
OTTAWA – May 30, 2023 – Today’s release of the 2023 Q1 Housing Market Index (HMI) coming from the Canadian Home Builders’ Association indicates that builder confidence is still low but has slightly risen, as high interest rates and prices keep many prospective buyers on the sidelines. The HMI is a leading indicator about the current and future health of the residential construction industry in Canada, and Q1 2023 was the first time in a year the number rose, indicating slightly better conditions reflective of the plateau on interest rates. The CHBA HMI for single-family builders was 34.3 in Q1 2023, up from 26.2 the previous quarter. The multi-family HMI increased from 26.0 last quarter to 33.5 in Q1 2023.
The market remains slow, however, and we can expect housing starts in future quarters to reflect that. According to respondents, many buyers are under the impression that prices will drop further, especially in the entry-level market, but the fact is that construction costs keep rising. Lumber prices have come down somewhat, but nearly all other products are more expensive, bringing total costs for construction up nearly $68,000 nationally on a typical 2,400 square foot home compared to prior to the pandemic. Furthermore, labour costs have increased some 26% since prior to the pandemic, according to survey respondents. HMI respondents said that interest rates and the high cost of construction remain the biggest concern for their prospects.
Interest rate hikes over the past year continue to play a huge role in affordability and are now limiting housing supply. Nearly 60% of respondents said the market slowdown is causing them to build fewer units, and almost a quarter said it’s resulting in cancelled projects. A discouraging 64% of builders expect to have fewer starts this year than in 2022. And for those who have already purchased a home, HMI respondents indicate that one third have to seek alternative lending solutions to close on their final purchase, and 30% of builders are making accommodations so that buyers can close.
Current market conditions are resulting in fewer housing starts, and CHBA is advocating for a holistic approach to get the industry on track to start to make up Canada’s housing deficit, which, according to CMHC, requires doubling annual housing starts and building 5.8 million homes over the next decade. With the skilled worker shortage, Canada will need immigration to fill vacancies in the new home construction and renovation industry. Further, to truly pursue higher levels of housing starts (provided market conditions allow), more factory-built solutions will be needed to increase productivity—Canada will need to build more homes with fewer workers per build. At this time, 29% of HMI respondents indicated they have produced/used some form of pre-fabricated solution (e.g. wall panels, modules) in the past year. But in the next 1-3 years, 90% are considering producing/using some form of factory-built solution. CHBA is actively working on an industry transition strategy to help identify pathways to successfully increase the factory-built elements of the sector.
CHBA’s HMI provides a leading market indicator for both the single-family and multi-family markets in Canada, before permits and starts. Released on a quarterly basis, the HMI provides insight into the industry, including many of the issues that are affecting housing affordability, with a strong correlation to future housing starts. The data for the CHBA HMI comes from an exclusive panel of hundreds of CHBA homebuilders and developers from coast to coast. Every quarter, this panel responds to a series of questions about market conditions. CHBA then uses proprietary statistical analysis to prepare the quarterly HMI. In addition to the standard HMI questions, each quarter CHBA asks “special questions” that allow the Association to gather data and insights into current issues affecting the industry across the country.
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 protected].
About the HMI
CHBA’s Housing Market Index (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.