In the world of Canadian home builders, what was once a planned boom is now taking a turn towards a bust. The recent findings from the Canadian Home Builders Association (CHBA) reveal a concerning trend in the industry. The sentiment among home builders has remained pessimistic for the 8th consecutive quarter, with plans to cut back on the number of homes being built by an average of half due to weakened demand.
Canadian Home Builder Sentiment: A Two-Year Downfall
The CHBA’s latest survey for Q2 2024 showcases a stark decline in home builder sentiment. This marks the 8th consecutive quarter where sentiment has lingered in negative territory. While national sentiment hasn’t plummeted to the all-time low seen in 2022, builders across the country are far from optimistic about future building endeavors.
Regional disparities in sentiment are glaring, with British Columbia and Ontario experiencing record lows. These two provinces, responsible for the majority of new starts in 2024, are facing a significant challenge. On the contrary, provinces like the Prairies, which had negative sentiment in 2022, are now seeing positive territory. Atlantic Canada, despite its minor share of new starts, has managed to stay slightly above the positive threshold for the past 6 quarters.
The CHBA attributes this shift in sentiment to regional affordability. As residents migrate from expensive provinces to more affordable regions, demand weakens, impacting builder sentiment. The regions benefiting from this influx are witnessing a surge in demand for new housing and a positive builder sentiment.
Cutting Back Plans: The New Norm for Canadian Home Builders
The future seems bleak for Canada’s home builders, with a significant reduction in new home starts on the horizon. A large majority (61%) anticipate fewer new home starts in 2024 compared to 2023, reflecting a softening demand. On average, those scaling back their plans have halved their estimates, indicating a substantial pullback in construction activities.
It’s essential to note that there is a lag between qualified demand for pre-construction and actual housing starts. The erosion in sentiment that began two years ago is likely contributing to the decline observed in the current year. Conversely, any positive developments today may not immediately translate into increased new starts.
Blaming the Rates: Rising Interest Rates as the Culprit
The blame game among Canadian home builders centers on rising interest rates, regardless of region. The CHBA survey reveals that 65% of builders in Q2 2024 are planning to build fewer homes due to elevated rates. Additionally, 31% have outright canceled new developments as a result of climbing interest rates.
While interest rates are being pinpointed as the root cause of dwindling demand, there may be more to the story. The US Federal Reserve’s recent analysis sheds light on the complexity of housing affordability and interest rates. They argue that rising rates may actually prevent a quicker erosion of affordability, which could impact future monetary policy interventions. As input costs continue to rise, builders are skeptical about any corrective measures or relief from a stronger loonie.
In conclusion, the Canadian home builder industry is facing significant challenges, with sentiments at an all-time low and plans to cut back on construction activities. As the sector navigates through these tough times, it is imperative to closely monitor the evolving trends to make informed decisions for the future.
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