Residential Construction Investment Falls for Fourth Straight Month in June: Statistics Canada

For the fourth month in a row, investment in Canadian residential construction declined in June, dropping by 4.5% from May to settle at $12.1 billion. According to data released Aug. 18 by Statistics Canada, it’s not just homes feeling the pinch either. Non-residential construction, encompassing everything from office spaces to factories, also saw a slight decrease of 0.2%, dropping to $5.9 billion month over month.

The agency identified an overall decline of 5.2%, reducing the total investment to $55.7 billion. This decrease was attributed solely to an 8.2% drop in residential construction, which lowered the value in that sector to $37.9 billion.

Results for the entire second quarter were also poor, with the release identifying single-family and multi-unit homes a key contributors to the decline.

“Investment in single family homes fell 10.5% to $19.7 billion in the second quarter, the largest decline since the second quarter of 2020,” the release said. “Multi-unit construction declined for the third straight quarter, falling 5.7% to $18.2 billion.”

Non-residential investment showed a spark of resilience in the quarter, inching up 1.8% to $17.8 billion. This marks a tenth consecutive quarterly increase in this segment. Within this category, investment in industrial buildings surged 5.6% to $3.7 billion. Commercial construction, too, experienced an upswing, growing 1.7% to reach $9.8 billion.

In June 2022, the Canada Mortgage and Housing Corporation (CMHC) determined that Canada must accelerate the pace of construction to build 3.5 million additional new homes by 2030 to eliminate problems with affordability. At present, the country is building 200,000 to 300,000 new units annually, and would need to more than double that number to reach the CMHC’s target, but recent data shows residential construction has instead been on the decline.

Raymond Wong, vice-president of data solutions delivery at the global real estate software and advisory firm Altus Group, explained that interest rate instability has led to a wait-and-see approach among residential real estate developers.

“From a developer’s standpoint, they want to make sure that when they commence a project, that they’re not sitting on inventory and that the product sells,” Wong said. “So there’s a little delay on certain projects. They’re sort of waiting to see if there’s any other interest rate increases down the road, and as well as where the economy sits right now.”

Source: Financial Post
Source: Statistics Canada

Canadian Home Sales Edged Lower in July amid Uncertainty over Future of Borrowing Costs

Statistics released on August 15th by the Canadian Real Estate Association (CREA) show national home sales were only slightly changed on a month-over-month basis in July 2023. Highlights are as follows:

  • National home sales edged down 0.7% month-over-month in July.
  • Actual (not seasonally adjusted) monthly activity came in 8.7% above July 2022.
  • The number of newly listed properties rose 5.6% month-over-month.
  • The MLS® Home Price Index (HPI) climbed 1.1% month-over-month and was down just 1.5% year-over-year.
  • The actual (not seasonally adjusted) national average sale price posted a 6.3% year-over-year increase in July.

Home sales recorded over Canadian MLS® Systems posted a small 0.7% decline between June and July 2023. Activity has been showing signs of stabilizing since May. 

While sales were up in July in more than half of all local markets, a decline in the Greater Toronto Area (GTA) tipped the national figure slightly negative. Sales were also down in the Fraser Valley, which together with the GTA off set gains in Montreal, Edmonton and Calgary.

The actual (not seasonally adjusted) number of transactions in July 2023 came in 8.7% above July 2022 – the largest year-over-year national sales increase in more than two years.

“July continued along the same trend we’ve seen emerge in recent months, with sales levelling off and new listings returning in more normal numbers,” said Larry Cerqua, Chair of CREA. “This has been giving buyers more choice and balancing the market, which as of July was also slowing the rate of price growth,” continued Cerqua.

“Following a brief surge of activity in April, housing markets have settled down in recent months, with price growth now also moderating with its usual slight lag,” said Shaun Cathcart, CREA’s Senior Economist. “Sales and price growth are already showing signs of tapering off further in August in response to the Bank of Canada’s mid-July rate hike and messaging regarding above-target inflation for longer than previously expected. We’re probably looking at another round of ʻback to the sidelines’ for some buyers until there’s a higher level of certainty around interest rates going forward.”

The number of newly listed homes was up 5.6% on a month-over-month basis in July. Building on gains of 2.8% in April, 7.9% in May, and 5.9% in June, new listings have gone from a 20-year low in March to closer to (but still below) average levels by mid-summer.

With new listings outperforming sales in July, the sales-to-new listings ratio eased to 59.2% compared to 63% in June and a recent peak of 68% in April. That said, the measure remains above the long-term average for the measure of 55.2%.

There were 3.2 months of inventory on a national basis at the end of July 2023, up a bit from 3.1 months in May and June. While this was the first month-over-month increase since January, this measure is still a full month below where it was at the beginning of 2023, and almost two months below the long-term average for this measure (about five months).

The Aggregate Composite MLS® Home Price Index (HPI) climbed 1.1% on a month-over-month basis in July 2023—a larger-than-normal increase for a single month but only about half as large as the gains recorded in April, May, and June. This is in line with sales having levelled off as new listings have been recovering.

Despite the smaller gain at the national level, a monthly increase in prices between June and July was still observed in the majority of local markets as has been the case since April. The Aggregate Composite MLS® HPI now sits just 1.5% below year-ago levels, the smallest decline since October 2022. Year-over-year comparisons will likely tip back into positive territory in the months ahead because prices continued to decline through the second half of 2022.

Source: Globe and Mail
Source: CREA

Canada July Housing Starts Slip by 10%

Canadian housing starts slipped by 10% in July compared with the previous month, which had produced the strongest figures in ten years, data from the national housing agency showed. 

The seasonally adjusted annualized rate (SAAR) of housing starts fell to 254,966 units in July from a revised 283,498 units in June, the Canadian Mortgage and Housing Corporation (CMHC) said. Economists in a Reuters poll had expected starts to fall to 240,000 in July.

The Vancouver and Toronto census metropolitan area (CMAs) saw decreases in total SAAR housing starts in July, with Vancouver down 23% and Toronto down 29%. In contrast, the Montréal, Calgary and Edmonton CMAs recorded respective increases of 12%, 33% and 67% in total SAAR housing starts.

Despite the monthly drop, total SAAR housing starts for all areas in Canada was 7.4% above the 5-year average. The SAAR of total urban starts decreased by 11% in July to 234,857 units while multi-unit urban starts decreased by 12% to 193,446 units.

Single-detached urban starts decreased by 4% to 41,411 units and rural starts were estimated at a seasonally adjusted annual rate of 20,109 units.

Source: Reuters
Source: The Star
Source: CMHC

22% of Canadian Homebuilders Cancel Projects amid High Rates despite Severe Housing Shortage

At a time when Canada desperately needs to build more housing the construction industry “remains downbeat” amid high interest rates, with 22% of Canadian homebuilders cancelling projects entirely in the second quarter of 2023. 

The Canadian Home Builders’ Association (CHBA) released its second-quarter report, which saw the construction of both single- and multi-family units remain low but increase slightly in the second quarter — an improvement from the lows recorded in the fourth quarter of 2022. Around 67% of the association’s expert industry panellists stated that the slowdown in the real estate market is causing them to build fewer units, compared with 59% reported in the previous two quarters.

The slowdown in new builds is concerning, said CHBA CEO Kevin Lee, as Canada needs to build 5.8 million homes within the next 10 years to close Canada’s current housing supply gap. “Current conditions — with construction costs rising, labour shortages, and especially the current financing conditions — are preventing that from happening. Canada needs a holistic approach to increasing housing production,” he said.

The building slowdown comes at a time when the Ford government is removing 7,400 acres of land from the Greenbelt to build new housing. “What we are doing is trying to build the 50,000 homes for people that need it,” Ford said, referring to the Greater Hamilton and Toronto Area land being opened for development.

A pause from the Bank of Canada rate hikes between late January and June allowed buyers time to adjust to higher interest rates, and an uptick in sales and prices during the spring brought optimism to the market, the report said. But the rate hikes in June and July will keep building momentum “muted,” it added.

CHBA’s index for single-family new-builds increased to 39.9 points from 34.5 points in the first quarter and multi-family index increased to 41 points from 33.5 points in the previous quarter — indicating slightly more favourable conditions for new residential construction. The association’s housing market index is on a scale of zero to 100. When it’s zero, that means the association’s homebuilders believe the market conditions are poor and 100 when conditions are good.

Still, CHBA notes that both indexes are “well below” the same measures from the first quarter of 2022 (before rate increases) when the single- and multi-family indexes sat at 89.4 points and 88.8 points, respectively.

During the pandemic, housing starts increased well above historic norms thanks to low interest rates, pent-up consumer savings and the ability to live farther from work, Lee said. “The 271,000 starts in 2021 and 261,000 in 2022 were well above the 200,000 or so historical norm,” he said. “To address the housing deficit and work toward doubling housing starts, an all-hands-on-deck approach from all levels of government will be required.”

While Ontario Premier Doug Ford has said the need for more housing drove the controversial decision to open up the Greenbelt for development, the report indicates that the more pressing issue is getting builders to construct homes in the first place. The federal government could introduce greater tax incentives for purpose-built rental developments as a way to boost more affordable housing stock, Lee added.

Marc Desormeaux, principal economist at Desjardins, said the federal government’s Housing Accelerator Fund — which provides incentive funding to local governments responsible for implementing policies to increase the housing supply — is a step in the right direction when it comes to building more housing. “Provincial and municipal governments also have a responsibility to reduce the barriers to building and leverage federal money to get more shovels in the ground,” he said. “Reducing barriers to new construction could include altering zoning restrictions to allow for greater density along transit routes.”

Addressing the labour shortage is another key factor to boost more housing builds, the report said. Around 20% of the labour force in the home construction sector is expected to retire over the coming decade. While the federal government has addressed some of this concern by relaxing rules to bring more skilled workers to Canada, Lee said, it won’t fully address the shortage.

“Canada needs to build 3.5 million more homes than the 2.3 million we normally would over the next decade to make up Canada’s housing deficit and help address affordability,” he said. “This is an important target. It will take a comprehensive approach by all levels of government to pursue this with any level of success.”

Source: The Star