CHBA's Housing Market Index

2021 Q2 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 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’ 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.
  • 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

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 Q2 results, an online survey of 193 builders was conducted by CHBA from May 12, 2021, to June 4, 2021, using CHBA's panel of builders. Some builders elected to speak to both the single and multi-family markets, resulting in 271 unique responses. 39 local HBAs participated in this survey.  The full sample has a margin of error of 7% 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 will 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.

Survey Demographics
Bar Graph of Builder Types in 2021 Q2 Survey, with the most (45%) doing both SF and MF


Archive

  • 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 $19,254.
    • 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