Canada’s planned builder boom is turning into a bust. The Canadian Home Builders Association (CHBA) released the results of its Q2 2024 survey. They found that home builder sentiment remained negative for an 8th consecutive quarter. As a result of weak demand, most plan to significantly reduce the numbers of homes they build—by half on average.
Canadian Home Builder Sentiment Has Been Negative For 2 Years
Canadian home builder sentiment took a sharp turn in the second quarter. The CHBA’s quarterly survey shows Q2 2024 was the 8th quarter that sentiment remained in negative territory. At the national level, sentiment hasn’t quite returned to the all-time low reached at the end of 2022. However, builders remain less-than-optimistic about the prospects of building.
As one would expect, there are significant regional differences in the sentiment. British Columbia and Ontario have seen sentiment drop to a record low level. Considering the two provinces represent the majority of new starts in 2024, this is an underappreciated (and big) problem.
On the flip side, the loss of pricey provinces is a gain for those that are slightly more affordable. The Prairies went from negative sentiment while other regions hit record lows in 2022, but are now sitting in positive territory. Atlantic Canada, a minor share of new starts, has remained just above the positive threshold for the past 6 quarters.
The CHBA attributes the shift to regional affordability. The general trend is residents are leaving more expensive provinces, resulting in weaker demand and negative builder sentiment. Less expensive regions benefitting from this boom are helping to boost demand for new housing, and builder sentiment.
Most Canadian Home Builders Are Cutting New Home Plans In Half
Canada’s home builders plan to build a lot less going forward. Most (61%) now see fewer new home starts in 2024 than 2023, as demand softens. On average, those planning to build fewer homes have cut their estimate in half over the time frame. That’s a fairly substantial pullback.
Keep in mind that there’s a lag between qualified demand for pre-construction and housing starts. Sentiment that began eroding two years ago is most likely behind the decline observed in the current year. The weakness experienced today will be seen in the future. Similarly, if things pick up today, the positive impact on new starts wouldn’t be seen for months.
Most Builders Blame Rising Interest Rates For Woes
Most Canadian home builders, regardless of region, blame interest rates for their negative sentiment. The CHBA survey found 65% of builders in Q2 2024 plan to build fewer homes as a result of elevated rates. Nearly a third (31%) of builders claim they’ve flat out canceled new developments as a result of rising rates.
Attributing the decline in demand to interest rates is an interesting point, though potentially misguided. The US Federal Reserve recently took a dive into this issue, explaining the “naive” assumption regarding housing affordability and rates. The world’s largest central bank argues that affordability would have eroded faster without rising rates, weakening the ability for monetary policy intervention down the line. They further explain that a real discussion about affordability requires consideration of the quantity of debt needed to buy a home, not just the share of income needed to service that debt.
As home builders face rising input costs, they appear to have adopted a similar position. They don’t see input costs correcting, or a stronger loonie helping to reduce the net cost of commodity acquisitions.
Good point on the lag between projects being sold and built. The gov is pretending it’s stimulating buying but most of these new homes were bought when investors were in a frenzy in 2021-2022.
The investor frenzy started long before 2021. The pandemic supercharged it.
Gov is backing inefficient projects to make sure there’s no deflationary shock of input costs that would actually make things affordable.
They can’t stand the idea of GDP pulling back though, even if it means a healthier economy.
Builders and developers are building in places where people are moving to. Development cost charges, permitting and attitudes are better in every way in Alberta. Land availability is not a problem whatsoever. Build on farmland or green space, no problem. Lots of it around. In the central Alberta town I moved to there is a lot of building going on. Also more trails, parks with small lakes (retention ponds) than anywhere I have ever lived. 13 pot shops, 13 liquor stores, Walmart, No frills, Sobeys, Canadian Tire plus a lot more. Also basically every fast food joint. There is no need to suffer in BC, Ontario today Halifax on over- crowded and overpriced conditions where similar housing options cost 3 to 5 times as much. Plus the tax burdens in these places compared to Alberta are a joke, absolutely insane and corrupt. Basically Alberta today is already like living in another country. Or more like a colony which gets its treasury seized by the wicked king. A Boston tea party like event is inevitable unless big changes are made in Ottawa.
“Most Builders Blame Rising Interest Rates For Woes”… they obviously have no idea how the economy works. It’s the low rates we had for the last 20+ years that caused this real estate bubble where a tiny little condo costs an arm and a leg now. Had the rates been at 5% for the last few decades, we wouldn’t currently have a housing crisis.
But in any case, that is actually good news. Less home building will mean less work for electricians, plumbers, roofers, etc. and anything/anyone related to real estate. This will cause and/or aggravate the recession, which will allow us to finally get that reset. And THAT’S how you pop a bubble, ladies and gentlemen !
You do realize that builders borrow for developments, right? High rates don’t only affect the home buyer. And, like everything, those higher costs are passed on down which keeps the price of new starts inflated.
I agree though that there certainly was a frenzy with the low rates on the consumer side of things, but the rates in of themselves were not the problem. It was just how easy it was to be approved. The fed in fact backed mortgages to encourage lending which meant the tax payer would be on the hook. As is the case with most things, one need to look no further than our awful government to find at the very least an enabler of this situation if not the cause
Using your logic, we should always keep the rates very low so that “builders borrow for developments”. Again, it’s 20+ years of low rates that got us into this mess. And what “high rates” are you referring to ? You consider 4.5% “high”, really ?
Daniel P., when your wish comes true I will buy your house 5 cents on the dollar how’s that? Be careful what you wish for but it doesn’t matter to me because I’m in a situation that’s all cash right now anyways so bring on the rain and let it fall.
Hey Rosco, been hitting the sauce lately ?
We are doomed. With the current immigration levels and the lack of accommodation, affordability issues will only get worse. I cannot see anything getting better in the next five years for the average working Canadian. The rich will do great and Canada will become the next great debt servitude nation. I advise every young Canadian with a little money and a lot of ambition to get out ASAP. There is no future here just massive debt to get an education, own a home and vehicle. The ship is sinking and it is everyone for themselves so you better know how to swim.
Immigrants get blamed for housing prices, but don’t discount 2 decades of artificially low interest rates, money laundering via real estate, and tax policies that encourage real estate speculation. I’m sure you know people who keep buying and selling homes to flip in 2 year. Thousands of people do this over and over. People think you can’t lose. It’s kinda nuts that 1 in 59 workers in Toronto is a realtor.
You are speaking the truth !
It is not rocket science as all you have to do is look at most of Europe except Hungary, the U.K, Ireland, N.Z. and Australia to see there has not been a solution to this problem which hit those areas before they hit here. Migrants by the millions are circling planet earth to find a place better than where they came from. This problem will never be solved with open borders. There are housing problems as bad or worse than ours in these countries. And the one thing we have in common migrants and immigration in unrestricted amounts.
Real state is not that different than other industries, and new projects keep coming up without considering customers need. I have visited so many bad places that I feel thinking on all the resources that went to waste. Investors buy because of the value of the land, families and professionals buy because we need a place to call home. If you are building a house put yourself in the shoes of your buyers and think if you would live there, if you don’t picture yourself in a house without dining room or livingroom, or sleeping in a room without closets or nightstands, one person kitchens then put some effort building something functional, with a decent design that can accommodate different types of customers. Canada needs more housing!!! Good, safe and affordable housing! Deacelerating the construction of new homes will be the beginning of a new sellers market where we will be obligated to pay high market prices again!!
Also Canada and a lot of these other countries are giving benefits and housing to migrants when they’re giving nothing to the poor locals. Illegal migrants are getting better treatment than locals. Women with baby stroller. And hundreds of homeless Canadians who are poor. African Women with four or five kids dressed with nice jewelry, African men sitting around drinking coffee and living the leisurely life. I was in Kingsway mall in Edmonton last week and it was 100%. Africans crowding Tim Hortons and 85% of the people in the mall were from Africa.
Everyone wants to talk really loud about their degree in armchair economics. It comes down to what the majority of people are experiencing in their local markets. If you’re in need of a home you fight over a small and now likely diminishing supply. You likey will pay more and prices will go up. Not enough demand prices come down. Remember what happened during the highest real estate surge in Covid? Everything was selling for 100-300k more than asking price with 10-20 offers for sellers to choose from. Finally buyers got fatigued from never getting a house and the market cooled. The focus of the media is always macro but often it’s micro local situations determine what really happens daily. With interest rates coming down investors stand to make more money in real estate. The demand for building will surge with a new wave of money. It’s a cycle that keeps going since the dawn of money and real estate. Macro factors running alongside micro local market factors. I always just try to sell when they need it and buy when they don’t. Worked out quite well.
It’s quite funny to hear people use the term “arm chair economist” in a derogatory way, then pretend that COVID was even an exceptional but logical use of monetary policy.
Never in history has such poorly defined inflation models allowed just a zero-out on travel to convince central banks there’s no inflation. Also unprecedented to slash rates 3x without any other updates on inflation, so yeah— when people are being given money and they can’t exit their borders, prices are going to rise.
That’s not the case, which is why capital is fleeing the country so rapidly in advance of the inevitable attempt to grab it.
Tiff was Daft,Covid Relief fed the Corporate and killed the Market and turned risk into hedge,not deflation of market valuation.Capital buys time, currency is trust,inflation is corrected by the lack of both,Capital and Trust.Junk Bonds are the product of Tiff See Bungle (south sea bubble)blind magic yaun had supplied Time ,Tiff was looking for a pencil sharpener rather than a .
New home buyers will never be able to afford a house and its not because of interest rates its because housing tripled in a few years, now everything is more than 500k when it was under 200k $ and that’s in a small town (imagine a city at 800k and up) How is a new home buyer, even if they put down 80k, supposed to afford the monthly payments for a 800k $ house? So, the people that owned a house pre-covid, cry me a river that you don’t want to lose money on your house ( you basically won the lottery over night) prices need to come down. I own a house pre covid, so I’m thinking of my kids when I say this!