CHBA's Housing Market Index

2021 Q3 HMI



Single-Family
(includes single detached homes, semi-detached homes and row (townhouse) homes)


Multi-Family

(includes stacked townhouses, duplexes, triplexes, double duplexes and row duplexes, and low and high-rise apartment buildings)

Properties of the HMI

(i.e. how to read the number)

  • The HMI is on a scale of 0 to 100
  • It's 0 only when everyone says conditions are "poor"
  • It's 100 only when everyone says conditions are "good"
  • It's 50 when the % saying "good" = the % saying "poor"

CHBA is pleased to present the Q3 results for its newest research and economics product: the Housing Market Index. This informative product provides a much-needed leading indicator about the current and future health of the residential construction industry in Canada. 

The data for this new Housing Market Index (HMI) comes from an exclusive panel of CHBA homebuilders from coast to coast. Every quarter, this panel – which was created in collaboration with our local and provincial home builders’ associations – responds to a series of questions. CHBA then uses propriety statistical analysis to prepare the quarterly HMI. In addition to the three standard questions, each quarter CHBA asks a few “special questions” that allow the Association to better understand the data and current issues across the industry. 

CHBA’s Housing Market Index is modelled on the National Association of Home Builders (NAHB) very successful and influential US version. The NAHB version is used regularly by financial analysts, the Federal Reserve, policymakers, economic analysts, and the news media, given the importance of the health of the residential construction industry to the overall economy. Through this new CHBA Housing Market Index, CHBA is looking to do the same for Canada. 
 
 
If you have any questions or feedback about the CHBA HMI, please contact Viktoria Halim, CHBA Economist, via email.

Q3 HMI Overall Summary


Builder Confidence Remains High, Though Supply Chain and Labour Challenges Dampen Sentiment 

Both the single-family HMI (77.8) and the multi-family HMI (77.6) remain fairly high but have dropped since Q2 numbers in the 83 range under the weight of material price increases, supply chain disruptions causing delays, labour shortages and price increases, and changes to the stress test. Despite those challenges, the majority of builders still rank current and future conditions as good, and traffic of prospective homebuyers remains strong. However, overall construction costs on a 2,374 sq ft home are up almost $60,000 per unit; and closings, because of supply and labour challenges, are delayed nationally by an average of 7 weeks.

  • The CHBA HMI shows that builder confidence in the single-family market was high in Q3 2021, at 77.8, though declining by 5.1 points since Q2 2021. In Q1 2021, the single-family HMI was 83.2, which is a 7% decline between the three quarters. Note that HMI numbers are not seasonally adjusted. 
  • While the drop is reflective of challenges with the supply chain and with labour, the still-reasonably-high HMI illustrates continued builder confidence in Canada due to the increased demand for single-family homes. A variety of factors are reflected in the quarter-to-quarter sentiment decline, including changes to the stress test, but also very much the impacts of the pandemic on the supply chain and labour. Supply chain issues are a continuing problem, as more than 55% percent of panelists said that they are delaying some pre-sales and/or development due to price volatility. On average, the higher cost of lumber has increased CHBA’s members’ costs on a typical home by $34,562. This is 1.8 times higher than when we conducted the survey in Q1 2021.
  • Given the HMI uses a 100-point scale, 77.8 is a reasonably high sentiment number, reflecting strong builder confidence. As a comparator, NAHB’s single-family HMI (which is similar to CHBA’s) hit 90, a record high, in November 2020, but it fell to 76 in September 2021 as material and labour challenges persist.
  • The majority of single-family builders rated current and future conditions as Good (73% and 59%, respectively). Comparing Q2 and Q3 data, in Q3 about 7% fewer builders rated current conditions as Good, reflecting a slight slowing of the market of record-pace, and the impact of the stress test on the market, which we discuss in more detail below. 
  • Forty-two percent of single-family builders rated the traffic of prospective homebuyers to be High to Very High, down 21% since we conducted the Q1 survey. Growth in investment in building construction, housing starts, building permits, home sales and home prices has been slowing in the past few months. However, all of these indicators recently reached incredible highs so a return to more typical levels of activity can be expected. A recent report by the Royal Bank of Canada indicated that housing starts over the past year have been their strongest since 1977 and the number of new housing units currently under construction is at an all-time high.  And while sentiment appears to be declining slightly overall across Canada, in Ontario and the Atlantic Region over half of builders rated the traffic of prospective homebuyers to be High to Very High.
  • We asked the respondents who selected a High to Very High or Average rating to provide more insights and we found that 74% of builders attribute the traffic of prospective homebuyers to high demand for new home construction, reflecting the market that has evolved through the pandemic as homebuyers seek more space and are able to move further from urban cores. This is up 6% since we conducted the Q2 survey.
  • Only 13% of builders noted traffic to be low, but of those, 88% of the respondents noted that the traffic is indicative of home sales slowing. Seventy-three percent of respondents also explained that they selected a Low rating because supply chain issues are causing significant delays in home completions. This continues to be the second most popular response since the Q2 survey. Lumber and other material prices slipped from the number one issue in Q2 to number 3.

[1] https://financialpost.com/real-estate/there-has-never-been-more-housing-under-construction-in-canada-but-the-city-that-needs-it-the-most-is-missing-the-boom

 

Single Family HMI Q3


Single Family HMI Q3


Single Family HMI Q3

  • The CHBA HMI for multi-family builders was 77.6 in Q3 2021, having started the year at 81.6 in Q1, then going up to 83.9 in Q2 with multi-unit activity growing as impacts of the pandemic on this part of the sector eased. The Q3 decline reflects the uncertainty around certain aspects of the housing market including supply chain issues. The stress test certainly also had an impact, as 32% of multi-family builders indicated that it had impacted their sales, with many panelists pointing to less qualified buyers which resulted in less sales.
  • Nevertheless, 77.6 remains a strong sentiment number and can be attributed to an overall growing condo market in 2021.  
  • The majority of multi-family builders rated both current and future conditions as Good (72% and 63%, respectively). As with the single-family builders, about 7% fewer multi-family builders rated future conditions as Good in Q3 2021.
  • Thirty-eight percent of multi-family builders indicated that the traffic of prospective homebuyers was High to Very High. This was especially the case in British Columbia where half of the multi-family builders expect traffic to continue to be very high (as it has been over the past year).
  • We asked the respondents who selected a High to Very High or Average rating to explain why they selected this rating and we found that 71% of builders attribute the traffic of prospective homebuyers to high demand for new condo construction, which was originally slow during the COVID-19 pandemic but has accelerated in recent times. This is up 3% since we conducted the Q2 survey.
  • Of the 10% of builders who ranked prospective homebuyers as low, 56% of builders noted that the traffic of prospective homebuyers is currently low because supply chain issues are causing significant delays in home completions. This is up an astounding 38% since Q2.

multi Family HMI Q3



In addition to the survey questions that help develop the HMI, CHBA included a few additional “special questions” to ask the expert panel. These special questions allow us to better understand the results of the HMI and other industry issues. CHBA has opted to address the following questions in the Q3 survey: 

  • Almost 68% of CHBA members said that their lumber costs went up by more than $20,000 and 25% of respondents indicated that their costs increased by more than $40,000 as a result of surging lumber prices. National average construction cost increases for a 2,374 sq ft home are $34,562. This is 1.8 times higher than when we conducted the survey in Q1 2021. The highest average cost increase was found to be in New Brunswick (a 116% jump from what was reported in the Q1 survey). 
  • Over one third of respondents said that their construction costs due to rising prices of other materials (outside of lumber) have gone up by more than $20,000, which is double what we saw in the Q1 survey. However, it is also 17% less than what was reported in the Q2 survey, indicating overall construction cost increases may be cooling. The national average construction cost increases (other than lumber) for a 2,374 sq ft home are $25,282. British Columbia’s average cost increase was highest, at $32,308.
  • Combining the lumber cost increase with the other construction material cost increases on a 2,374 sq ft home, the total construction cost increase is almost $60,000.  This is obviously a very high number.
  • Lumber availability and pricing continue to be a significant issue for our members as almost 73% of panelists are having trouble accessing lumber products with the majority (58%) indicating that other structural wood products (e.g., I-joists) have been difficult to access. However, about 27% said that they are currently not having any issues accessing lumber products.  
  • On average, supply chain issues have resulted in almost 7 weeks in delays in home completions for builders across Canada. The average delay is up by one week since we asked this same question in the Q1 survey. The highest average delay was reported by CHBA members in Newfoundland and Labrador, at 10 weeks. Twenty-four percent of respondents indicated that supply chain issues have resulted in over 9 weeks in delays.
  • Overall, the panelists outlined several key challenges due to supply chain issues. Appliances were by far the most mentioned product that has been impacted, followed by plumbing materials and plumbing fixtures and windows. Compared to the Q1 survey, these responses were unchanged, and these three products continue to be the most affected by supply chain issues. The only difference between the two surveys is that in Q1 doors were in fourth place, while in Q3, we can see that bathtubs, showers and sinks are now in fourth place.
  • Fifty-five percent of respondents indicated that price volatility has resulted in their company delaying some pre-sales and/or development. Compared to the Q1 survey, this number is up 12%.
  • Over 82% of CHBA members explained that with respect to trades, prices are up.
  • Sixty-one percent of builders stated that access to trades is difficult, and 60% noted this is causing construction delays. On average, the cost of labour/trades has gone up 19%, compared to prior to the pandemic. The highest average cost of labour/trades increase was found to be in Nova Scotia, where the cost of labour/trades increased by 26%, on average. 
  • Twenty-six percent of CHBA's panel said that the recently introduced increase to the stress test has impacted home sales for their company.  
  • Federal government support programs like the Canada Recovery Benefit are currently impacting the ability for CHBA members to find workers on their job sites, according to 64% of CHBA’s panel of builders.


An explanation of CHBA's methodology for the HMI is below. For a more comprehensive overview, click here.

Conducted on a quarterly basis, the CHBA survey asks an expert panel 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. Each variable allows the respondent to rate conditions as either “Good”, “Fair” or “Poor” or in the case of the traffic of prospective homebuyers “High/Very High,” “Average,” “Low/Very Low.” Each of these three variables creates a component index and the HMI is an average of the three component indices:


Component Indexᵢ = (% of Good responsesᵢ - % of Poor responsesᵢ +100)/2

HMI = 0.6xPresent + 0.1xFuture + 0.3xTraffic


The final number is weighted to ensure it is representative of CHBA’s membership by geographical location. The provincial weights leveraged 2020 Statistics Canada housing starts data for the breakdowns of single and multi-family markets to create the proportions of the single-family and multi-family markets in each province. This allows CHBA to create an accurate provincial representation while also taking into consideration that each province has very different single-family and multi-family proportions. Each local Home Builders’ Association (HBA) is also weighted to ensure proper representation by builder size (I.e. small/medium and large). In some cases, where local breakdowns for HBAs is not feasible, those HBAs are not weighted. The provincial weights are developed in a way to ensure the sample size is representative of the overall population of CHBA's membership of 2,861 builders. The special questions presented above are only weighted at the provincial level. 

For the Q3 results, an online survey of 217 builders was conducted by CHBA from August 24 to September 10, 2021, using CHBA's panel of builders. Some builders elected to speak to both the single and multi-family markets, resulting in 302 unique responses. 37 local HBAs participated in this survey.  The full sample has a margin of error of 5% at a 95% confidence level. 

CHBA’s HMI is modelled on that of the National Association of Home Builders (NAHB) in the US. The NAHB-Wells Fargo Housing Market Index is based on a survey of single-family builders that the NAHB has been running every month since 1985.  

For this year, CHBA is leveraging the NAHB's weights as the basis for CHBA’s HMI weights (see formula above). This is to ensure that CHBA is placing more weight on the Present conditions question. As CHBA collects more data, it is planning on developing weights for each of the component indices discussed above that will allow us to maximize the correlation with Canadian housing starts six months into the future. CHBA did not create the weights this year due to the need for historical data (which will only be possible as the HMI continues moving forward) and the need to rely on housing starts forecasts, which may not be accurate. In order to maximize the HMI’s ability to predict single-family and multi-family starts six months in the future, CHBA be using a longer time horizon of its HMI data to identify and examine a substantial trend in the data.   

Panel

The panel is made up of builders from constituent associations to ensure representativeness across Canada. Working together with the association’s local and provincial Executive Officers, CHBA was able to build this expert panel that is reflective of membership in each region. CHBA is planning on refreshing the panel once a year. The HMI is weighted to ensure the panel is representative by both geographical location (i.e. national, provincial and local) and size (i.e. small, medium and large). For some smaller home builder associations (HBAs), the sample is not weighted. In those cases, CHBA leverages the HBA’s expertise to ensure the sample is representative of the region. The panel also has a balance of single-family and multi-family builders that reflect the conditions of each local market in Canada. Single-family includes single-detached homes, semi-detached homes and row (townhouse) homes. Multi-family includes stacked townhouses, duplexes, triplexes, double duplexes and row duplexes, and low and high-rise apartment buildings.

Q3 Survey Demographics


Archive

  • The CHBA HMI shows that builder confidence in the single-family market was high in Q2 2021, at 82.9.
  • Given the HMI uses a 100-point scale, this is a high sentiment number, reflecting strong builder confidence. As a comparator, NAHB’s single-family HMI (which is similar to CHBA’s) hit 90, a record high, in November 2020.  It came down to 82 on average in Q2 as a result of increasing lumber prices and other supply chain issues. Ninety is the highest NAHB HMI score since NAHB started collecting this data in 1985.
  • In Q1 2021, the single-family HMI was 83.2, hence the 82.9 Q2 rating is a slight decline between the two quarters. Despite the slight decline, the reading above 80 indicates a signal of strong demand in the housing market. The COVID-19 pandemic has accelerated homeownership aspirations for many and the demand for more space and living outside of the urban core continues to fuel the growth of the single-family market. Note that HMI numbers are not seasonally adjusted.
  • The majority of single-family builders rated current and future conditions as Good (80% and 70%, respectively). Comparing Q1 and Q2 data, in Q2  about 3% more builders rated current conditions as Good, indicating strong current sales as predicted for future sales in Q1; also in Q2, about 3% fewer builders rated future conditions as Good, reflecting the uncertainty around potential interest rate changes and the impact of the stress test on the market.
  • 56% of single-family builders rated the traffic of prospective homebuyers to be High to Very High, down 7% since we conducted the Q1 survey. This is also visible in the housing starts and building permits data that have started slowing from their historical highs. While this indicates a gradual softening in the market quarter-to-quarter and month-over-month, the year-over-year data still shows extreme strength and growth in the housing market.
  • We asked the respondents who selected a High to Very High or Average rating to provide more insights and we found that 68% of builders attribute the traffic of prospective homebuyers to high demand for new home construction, reflecting the market that has evolved through the pandemic.
  • Meanwhile, the respondents who found prospective buyer traffic to be low attribute it to rising lumber and other materials' prices driving up construction costs and sales prices.

Graphs showing SF breakdown of current and future sentiments and traffic of prospective buyers

Graph showing single-family builders' rating of current and future conditions comparing Q1 and Q
  • The CHBA HMI for multi-family builders was 83.9 in Q2 2021, increasing by 2.3 points since Q1 2021. This is reflective of increasing condo demand in the past few months. At the onset of the pandemic, condo demand declined slightly as more people were interested in having a larger space and living outside of the urban core. With a rebounding economy and accelerated vaccine administrations across the country, we are seeing condo demand tick back up again.
  • The majority of multi-family builders rated both current and future conditions as Good (79% and 70%, respectively). As with the single-family builders, about 3% fewer multi-family builders rated future conditions as Good in Q2 2021, which reflects the uncertainty around certain aspects of the housing market including impacts of the stress test changes. 
  • That said, 54% of multi-family builders indicated that traffic of prospective homebuyers was High to Very High.
  • We asked the respondents who selected a High to Very High or Average rating to explain why they selected this rating and we found that 68% of builders attribute the traffic of prospective homebuyers to high demand for new condo construction, which was originally slow during COVID but has accelerated in recent times.
  • 45% of builders noted that the traffic of prospective homebuyers is currently low and is indicative of home sales slowing.




Graphs showing breakdown of multi-family builders ratings of current and future conditions, as well as traffic of prospective homebuyers

Graph showing breakdown of Multi-family builders rating of current and future conditions comparing Q1 and Q2

In addition to the survey questions that help develop the HMI, CHBA included a few additional “special questions” to ask the expert panel. These special questions allow us to better understand the results of the HMI and other industry issues. Given the volatility of supply chains, CHBA has opted to address the following questions in the Q2 survey:

  • Overall, 84% of builders have increased the price of homes as a result of increasing lumber prices and 72% of respondents have started ordering/securing prices as far in advance as possible.
    • Out of the builders who increased the price of homes, 35% were located in British Columbia, followed by Ontario (31%) and the Prairie Provinces (31%).
  • Over half (52%) of CHBA members said that their construction costs went up by more than $30,000 and an overwhelming 30% of respondents indicated that their costs increased by more than $40,000 as a result of surging lumber prices.
  • About 42% of respondents said that their construction costs due to rising prices of other materials (outside of lumber) have gone up by between by over $20,000. 
  • Many builders have started substituting certain materials due to the continuously rising prices. Out of the respondents who have started substituting materials, 50% have started substituting insulated concrete forms and foam sheathing.
  • In Q1, the average overall construction delay nationally was 6 weeks due to material shortages. This question was not repeated in Q2, but all indications are that these delays have increased.
  • Skilled trades shortages in terms of access to trades were also identified by over 40% of respondents, with 79% indicating prices with respect to trades have increased.
  • Almost half (46%) of the builders are experiencing roadblocks between the time a sales contract is signed and a building permit is issued.
    • The lengthy timelines were especially prominent in British Columbia and Ontario.
  • Once a permit is issued, home construction for most (43%) tends to begin in less than two weeks, reflecting builders’ ability to get moving quickly once the municipality has given necessary approval.
Graph showing breakdown of Approximate Increase in Construction Costs on a Typical Home due to Rising Lumber Costs
Graph showing breakdown of average lag time
Graph breaking down the top 5 actions taken by builders in response to lumber and material prices and supply challenges, with increasing the price of homes being the #1
  • The CHBA HMI for single-family builders is 83.2 in Q1 2021.
  • Given the HMI uses a 100-point scale, this is a high sentiment number, reflecting strong builder confidence.  As a comparator, NAHB’s single-family HMI (which is similar to CHBA’s) hit 90, a record high, in November 2020.  It came down to 83 on average in Q1 as lumber and other supply issues. 90 is the highest NAHB HMI score since NAHB started collecting this data in 1985.
  • The majority of single-family builders rated current and future conditions as Good (77% and 73%, respectively).
  • 63% of single-family builders rated the traffic of prospective homebuyers to be High/Very High.
  • Across the three HMI questions, sentiment declines as the average increase in construction costs due to increasing lumber prices rises. Respondents who indicated that conditions are Poor had an average increase of costs of 13% higher (for both current and future conditions) than those who indicated that conditions are Good. 
  • In terms of traffic of prospective homebuyers, the difference between the averages of the respondents who rated conditions as Good was 12% higher than the respondents who rated conditions as Poor. 
  • The traffic of prospective homebuyers question shows a direct relationship between sentiment and delay, with sentiment declining as delay rises. Overall, the average delay for the respondents who indicated traffic is Low to Very Low was over 11 weeks while those who rated the traffic to be High/Very High had an average delay of 5.45 weeks.
  • Single-family builders who rated current conditions as Good were more likely to say that their workforce has fully rebounded.

2021 Q1 HMI Single Family Graphs
  • The CHBA HMI for multi-family builders is 81.6 in Q1 2021. 
  • The majority of multi-family builders rated both current and future conditions as Good (78% and 73%, respectively).
  • 56% of multi-family builders indicated that they expect the traffic of prospective homebuyers to be High to Very High.
  • When asking builders about current conditions and the traffic of prospective homebuyers, we can see that the average increase in construction costs due to increasing lumber prices rises as sentiment declines. Respondents who indicated that conditions are Poor had an average increase of costs of 11% higher (for current conditions) than those who selected Good. 
  • The traffic of prospective homebuyers question shows a direct relationship between sentiment and delay, as sentiment declines as delay rises. Overall, the average delay for the respondents who indicated conditions are Low to Very Low is 57% higher.
  • For the costs associated with other supply chain issues, the average increased construction costs rise consistently across the three HMI questions as sentiment declines. 
  • Multi-family builders who rated current conditions as Good and Fair were more likely to say that their workforce has fully rebounded.  


HMI 2021 Q1 Multi-Family Graphs

In addition to the survey questions that help develop the HMI, CHBA included a few additional “special questions” to ask the expert panel. These special questions allow us to better understand the results of the HMI and other industry issues. The special questions are optional and may not be asked for every round of the survey. Given the volatility of supply chains, CHBA has opted to address the following questions in the Q1 survey:

  • Most builders (34%) indicated that the higher cost of lumber increased their construction costs by between $10,001 to $20,000.
  • All increased construction costs are significantly higher for single-family homes; however, the average delay is shorter for single-family homes than townhomes (5.48 weeks in delays versus 7.8 weeks in delays).
  • About 60% of builders indicated that supply chain issues resulted in significant cost increases and delays in home completions. 
    • National average construction cost increases for a 2,232 sq ft home are $19,447.
    • On average, supply chain issues have resulted in almost 6 weeks of delays in home completions for builders in Canada.
  • Overall, the panelists outlined several key challenges due to supply chain issues. Appliances were by far the most mentioned product that has been impacted.
  • 43% of panelists indicated that price volatility has resulted in their company delaying some pre-sales and/or development. 
  • 68% of respondents indicated that their workforce has fully rebounded. 
    • 21% are having trouble hiring staff. 
    • Only 3% of survey respondents said that they have not rebounded. 
    • Almost 60% of respondents indicated that hiring will increase over the next six months.
  • Most respondents (37%) indicated that with respect to trades, costs are up.


Single-family respondents and the HMI:

  • Across all three HMI questions, the average increase in construction costs due to increasing lumber costs rises as sentiment declines.
  • Respondents who rated conditions as Poor had a higher average increase in costs (13%) than those who rated conditions as Good.
    • This was also the case in terms of the traffic of prospective homebuyers question, where the difference between  those who rated conditions highly and those who rated conditions poorly was 12%. 
  • Average delay goes up as sentiment goes down for the traffic of prospective homebuyers.

Multi-family respondents and the HMI:    

  • When asking builders about current conditions and the traffic of prospective homebuyers, one can see that the average increase in construction costs due to increasing lumber prices rises as sentiment declines.
  • Respondents who indicated that conditions are Poor had an average increase of costs of 11%  higher than those who indicated that conditions are Good.
  • The traffic of prospective homebuyers question shows a direct relationship between sentiment and delay, as sentiment declines as delay rises. Overall, the average delay for the respondents who indicated conditions are Low to Very Low is 57% higher.


2021 Q1 Special Questions Graphs

2021 Q1 Special Questions Graphs 2