Canadian New Home Construction Forecast To Slow Significantly: Desjardins

Canada’s recent housing boom is expected to satisfy demand for years. Last year, the country saw 271,200 new homes begin construction, up a whopping 25.1% from a year before. This is just under the record reached in 1976, and obviously much higher than normal. That might have been the top of this cycle, according to economists at Desjardins. Their latest forecast shows a big drop in the pace of new home starts as rates climb and demand falls.

Canadian New Home Starts Forecast To Fall 17%

Canada’s building boom is forecast to slow down this year. The institution sees 225,100 new home starts in 2022, down 17.0% from last year. Starts are forecast to further slow to 214,600 in 2023, down another 4.7% from this year’s estimate. It’s a substantial deceleration but more new homes are still being built than pre-2020.

Canadian New Home Starts

The number of new homes to start construction and the forecast.

Source: Desjardins; Better Dwelling.

Ontario New Home Starts Expected To Fall 22%

Ontario is forecast to see the most rapid slowdown of any province this year. The institution’s economists have forecast 77,000 new home starts this year. It works out to a 22.7% decline from last year, significantly larger than the national drop. Next year follows with a more modest decline of 4.5% from the estimate for this year. It’s very much contrary to the province’s recent housing plan. However, they aren’t the first institution to be on a totally different page.

Canadian New Home Starts Change

The annual percent change in the forecast number of new homes to start construction.

Source: Desjardins; Better Dwelling.

BC New Home Starts Forecast To Fall 14%

Canada’s priciest province is forecast to see housing starts slow, but not as much as the average. They estimate BC will see 41,000 housing starts in 2022, down 13.9% from last year. It drops once again next year to 39,200 new homes, down 4.4% from the estimate from this year. BC’s slowdown is much slower than the national and Ontario forecasts.

The forecast is consistent with the industry as well as other financial institutions. BMO said they see the recent boom satisfying demand for a long time. They also believe the inventory issue will resolve after the Bank of Canada raises rates. On the resale side, CREA has also forecast demand will fall this year. Higher interest rates and eroded affordability isn’t a great recipe for strong sales.

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  • Remington 9 months ago

    Anyone can get a mortgage through the banks back door. As long as you pay your fees but the problem lies at whether you can afford the monthly payments. That’s where the collapse will happen. I know people who have got
    1.5 million mortgage who are all only making 80k a year. It’s an open secret.

    • alex 9 months ago

      Truth. No one was batting an eye about poor lending quality back in the US prior to the financial crisis. Internal and external auditors didn’t see any issues. Rating agencies didn’t see any issues. Underwriters didn’t see any issues, and borrowers certainly didn’t see any issues. It wasn’t until the damage was done where people were like “Woah! How could we have missed this?”

      When the gravy is flowing, no one ever focuses on structural risks, and everything must be good.

    • D 9 months ago

      That’s really not a problem. They signed up for a 30 year mortgage and when they can’t make the payment they’ll opt for a life time mortgage co-signed by their children who will be responsible for paying off the rest when they croak. Watch it happen.

    • AyRayRay 9 months ago

      Hi Remington, could you explain in more details just how people are doing this?

  • G 9 months ago

    If it’s under the 1976 record then it’s not enough. Population is way larger than then and also immigration is higher.

    • Olivia 9 months ago

      That’s not how that works. Single year surges can jump out of nowhere.

      BMO did the best analysis by far that shows significantly more housing was built than new people.

      • G 9 months ago

        It’s not out of nowhere, it’s because of demand. There’s still a supply shortage so they need a few years of this sort of building. It isn’t enough and with the new construction initiatives from the last election there could very well be more housing starts this year than 2021.

        • David Leham 9 months ago

          It’s fundamentally flawed to assess inventory when the incentive is skewed to not providing liquidity. This is income markets 101, but people that pretend housing has no financial value seem to ignore how financial assets work.

          Without a market based interest rates (1.75% is where the overnight rate should be right now), the demand is skewed to inefficient credit and holding property longer than you would.

          There’s a reason mortgage brokers have been saying “buyers aren’t getting rid of their old home, they’re leveraging them for a second home.”

          • G 9 months ago

            True there are a lot of properties being held on to for longer. But with 400,000 people coming into the country a year we should be having a continuous building boom. Especially considering how much land we have available. Any new home development is sold out before they break ground. And as a carpenter I can guarantee you there is an epidemic of aging, neglected homes that will be tear downs in the future. Also housing isn’t an asset it’s a liability. Real estate is an asset.

          • David Leham 9 months ago

            Doesn’t let me respond to you “G” but I’m old enough to remember when people said Canada’s population will forever grow in 1989 right before it fell off a cliff and our top talent started moving to the US.

  • dtferen 9 months ago

    Remington, can you explain how these people are getting approved for a 1.5M mortgage at 80K annual a year?

    • AyRayRay 9 months ago

      I would love to know this as well.

    • Eric Dixon 9 months ago

      I don’t think you replied to the right person but it’s a good question. How many households live in a 1 bedroom condo now? By the government and industry’s logic, 4-5 famlies must. LOL

    • Trevor 9 months ago

      Nobody is getting approved on a $1.5M mortgage with a $80k income.

      Maybe he’s referring to a $1.5m purchase price with significant down payment with a $80k income (most likely dual $80k income).

      $80k could probably afford $600k mortgage… I’m not a broker.

      The payments alone on a $1.5m mortgage exceed the $80k income by too wide of a margin. Is the mortgage backed by someone else? Seems like op is making up BS. Now mortgage fraud…? Ok.. that may make sense, but the $80k income still needs to find ways to pay the mortgage or will be foreclosed pretty quickly. But maybe he/she is buying the property off a buddy with significant profit and is expecting to file bankruptcy?

  • Anonymous 9 months ago

    I disagree. With 1 million in immigration in 2018 and 2019, we are still under-supplied in housing, hence the run up in prices. JT has announced another 830,000 immigrants in 2022 and 2023. The supply has no chance of keeping up with the demand these new to Canada families will have for housing. Let’s be clear, this has nothing to do with mortgage rules. It’s about supply and demand not being in equilibrium and all levels of government are to blame.

  • Trevor 9 months ago

    Anybody buying into this article needs to look at the market overall.. to say that the supply outweighs the demand is smoking something way too strong. We can’t build fast enough.. look at the number of people looking at the same home.. whether it be for sale or a rental. Why to you think city of Vancouver wants to turn single lots into 6units. The vacancy rate is under 2, and this is before bringing back students / tourists / other buyers.

    To think prices are super crazy and will come down whatever percentages other articles suggest are also smoking something way too strong.

    At the pace we are going with supply and prices worldwide, Canada’s pricing will more than likely be another 30% over 5 years… 10 years from now even higher. To be honest.. many people with money and homeowners want prices to fall, so they could purchase something bigger or more. The fundamentals says Canada’s housing is still has room to move up. Now, you raise interests to 10%, that’s a different story… I don’t think that will happen although many conspiracy theories are working out, so who knows.

    • Van YIMBY 9 months ago

      “Anybody buying into this article needs to look at the market overall..”

      The equilibrium of supply and demand can’t be assessed when a good has an incentive to purchase, such as non-market credit. At best, you won’t know if there’s a shortage until credit normalization. At worst, you’ll find out demand has been incentivized by hoarding to excess.

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