Canadian homebuilding market still slow despite slight increase in builder confidence: CHBA

Confidence by Canadian home builders is still low but has slightly risen as high interest rates and prices keep many prospective buyers on the sidelines, according to the 2023 Q1 Housing Marketing Index (HMI) released Tuesday by the Canadian Home Builders’ Association.

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, said the report.

Steffen Coonan

“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 per cent 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,” said the national association.

“Interest rate hikes over the past year continue to play a huge role in affordability and are now limiting housing supply. Nearly 60 per cent 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 per cent 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 per cent 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 per cent 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 one to three years, 90 per cent 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.”

Mario Toneguzzi