Despite housing shortages across the country, 59 percent of builders who belong to the Canadian Home Builders’ Association (CHBA) say they are building fewer units, and 23 percent have reported they are cancelling projects.
The report indicates that there is a lack of well-qualified buyers with “challenges in affordability related to interest rates or construction costs.”
Builders reported that while sales traffic was up during the spring busy season, buyers are purchasing well below the single-family and multi-family highs the market experienced last year, during Q1 of 2022, prior to the start of interest rate increases.
Builders have said that converting prospective buyers into a firm sale remains challenging, and builders have also noted that discounts are needed to generate sales.
“Very notably, builders commented that sales traffic/inquiries slowed or disappeared after the latest rate hike in early June,” said the report.
Builders reported that there are still some sales being made on entry-level homes, which are typically the least expensive homes for sale on the market.
The high interest rate environment is also presenting challenges in closing previous sales. “Nearly half of CHBA’s panelists reported that buyers are requiring alternative lending solutions and 34% said they are needing to make accommodations for some buyers so they can close,” said the report.
It suggested builder sentiment “remains firmly pessimistic,” and new housing starts are likely to remain well below the numbers reported in the previous two years.
“Achieving sustainable progress towards closing Canada’s 5.8 million gap in housing supply remains incompatible with current financing conditions,” said the report.
Forty-eight percent of builders characterized current selling conditions as fair and 32 percent rated conditions as poor. Notably, half of those responding to CHBA from Ontario rated conditions as poor. Builders seem to be assuming fair or poor conditions will persist for the foreseeable future, said the report, with only about 5 percent of builders characterizing the traffic of prospective buyers as high or very high.
In contrast, 24 percent reported high or very high sales traffic in the second quarter of 2022. “While prospective traffic continues to return slowly, it remains definitively below conditions seen in the same quarter last year,” said CHBA.
Fifty-two percent of CHBA members said that their lumber costs were still up by more than $20,000 compared to prior to the pandemic (down 14 percentage points since Q4 2022) and 22 percent of respondents indicated that their costs are still up by more than $40,000 as a result of lumber prices (down 9 percentage points since Q4 2022).
National average construction costs for a 2,400-square-foot home are up $24,390 (down 18 percentage points since Q4 2022). The highest average cost increase was found to be in British Columbia (at $29,563) and in Saskatchewan (at $27,723), the report indicated.
In terms of serious shortages, appliances have now been replaced by garage doors as the most impacted product, notes the report.
