Record low builder sentiment predicts concerning housing starts, emphasizing need for housing policy changes: CHBA
Builders are concerned about the state of industry conditions, and the fact that housing starts will be further repressed in 2024, according to the Canadian Home Builders’ Association (CHBA) Housing Market Index (HMI).
The Canadian Home Builders’ Association (CHBA) Housing Market Index (HMI) has reported that builders are worried about the state of industry conditions, and that housing starts will be further repressed in 2024.
According to the CHBA, in order to create an environment conducive to building more much-needed housing supply, Canada needs a course correction through policy and financial/mortgage systems changes.
The CHBA noted that in 2023, the annual average increase in mortgage interest costs was 28.5 per cent, measured by the consumer price index. This was the largest annual rise on record.
According to the CHBA, residential construction is sensitive to interest rate changes. Additionally, the declining balance of builder opinions in terms of selling conditions and sales office traffic is linked to the sustained interest rate hikes. This, according to the CHBA, foreshadows that housing starts in 2024 will be suppressed further unless changes are made.
The HMI, which is measured between 0 and 100, reached an all-time low for single-family builder sentiment, at 24.6, according to the CHBA, which surpassed the previous low recorded of 26.2 in Q4 2022.
The CHBA noted that multi-family HMI declined to 29.1. The year 2023 also saw 64 per cent of builders surveyed build fewer homes because of the high interest rate environment and 30 per cent said they cancelled projects.
When looking ahead, the CHBA notes that 36 per cent of builders anticipate fewer starts in 2024 in comparison to 2023. Builders are also concerned about closing difficulties on past sales. According to the CHBA, around one third reported having to make closing accommodations for buyers or reported buyers seeking alternative lending solutions.
The CHBA noted that these problems with closing previously sold builds will also influence builder decisions about whether they go ahead with developments in 2024.
The survey also found that building material price increases have added roughly $65,000 to the cost 2,400 square foot home in comparison to pre-pandemic times. Lumber prices have come down, however, other materials have continued to climb.
According to the CHBA, builders often say that conversations with potential homebuyers focus on explaining the higher costs of construction incurred.
“The takeaway is that the interest rates are directly lowering the feasibility of building much needed new housing supply—we saw this in 2023 and it will continue in 2024. The 2022 federal budget set a target of building 5.8 million homes over the next decade – that’s 3.5 million more than we normally would build – yet total housing starts have fallen in two consecutive years thanks to high interest rates and insufficient policy response,” said CHBA CEO Kevin Lee.
“All levels of government need housing policy that is focused and coordinated on improving affordability and supply through smart policy changes. In terms of the high interest environment, our top recommendations that would provide immediate results are no-cost-to-government policy options to help get well-qualified first-time buyers into the market: introduce 30-year amortizations for insured mortgages on new construction homes, and lower the mortgage stress-test qualifying rate in general and still more so for longer 7- and 10-year term mortgages.”