Canada’s population growth may have slowed, but new home completions are still moving at a breakneck speed. Canada Mortgage and Housing Corporation (CMHC) data shows developers delivered over 50,000 new homes in Q4 2020. The number of new homes began outpacing population growth in the prior quarter. The ratio went parabolic in the latest numbers though. Canada is now completing 18 homes per person added to the population.
Canada’s Population Growth Falls To Historic Low
Let’s start with Canada’s population growth, which just printed a new record low. The population is estimated at 38.0 million people at the end of Q4 2020. This is an increase of just 2,767 people from the previous quarter. Annual growth has fallen to 0.54%, a record low. Not just a recent record, but the rate of growth hasn’t been this low going back to at least 1946.
Canada Saw New Home Completions Surge 13%
The flood of housing that was under construction is still completing on time. There were 50,938 homes completed in Q4 2020, up 12.92% from the same quarter a year ago. This works out to ~7.12% higher than the median average for quarterly completions, over the past 10 years. It’s also the second most completed for Q4 since 2008, with 2018 being the year that beat it. As you may have figured out already, this is a lot more housing than the population has grown by.
Canada Is Delivering Over 18 Homes Per Person of Population Growth
Housing completions reached a ridiculous multiple of population growth. Builders delivered 18.41 homes per person the population grew by in Q4 2020. This is up from the record set in the previous quarter of 2.26 homes per person. Over the past year, they delivered a home for every 9.5 people out of 10. Considering homes on average are occupied by 2.9 people in Canada, it’s a lot of housing.
Canadian New Home Completions Per Person AddedThe ratio of new homes completed to person added to Canada’s population. Source: CMHC, Better Dwelling.
… But House Price Growth Is Accelerating?
The narrative has always been if you just build more, prices will start to catch up. That’s unfortunately an overly simple way to look at how home prices are established. If home prices fell with more development, why would anyone buy a new home from a homebuilder? Are they sacrificing themselves for the sake of the economy? Of course not, otherwise a developer wouldn’t have many sales.
The supply of an asset has a limited impact on prices. Liquidity and expectations are the biggest drivers of price movement. If no one has money to buy the asset from you, the price needs to drop until you find people that do. It doesn’t matter if your house is “worth” $1,000,000, if everyone only has $900,000 to buy it. When mortgage rates are lowered though, you give buyers an increase in budget. That extra credit means they’ll more easily absorb home price increases.
In a normal market, a borrowing frenzy slows naturally as people feel risk is higher than reward. However, The Bank of Canada and the Federal government broke the model with moral hazard. The public now largely believes the state will step in to prevent any drop in prices. It’s a lot of confidence in two organizations that investors are increasingly demanding risk premiums from.
Like this post? Like us on Facebook for the next one in your feed.