Housing market index illustrates strong builder confidence in Canada

Every quarter, the Canadian Home Builders’ Association (CHBA) on presents the results of the Housing Market Index Panel, which illustrates the current and future demand for single-family homes, as well as the health of the residential construction industry in Canada. The data comes from a panel of homebuilders across Canada, in collaboration with local and provincial homebuilders’ associations. CHBA’s Housing Market Index (HMI) is modelled on the U.S. National Association of Home Builders index, which has proven to be an accurate and highly trusted source, used by financial analysts, policymakers, economic analysts and the media.

Strong builder confidence

The results of the Q3 (July to September) Housing Market Index continue to show strong builder confidence. Despite the supply chain and labour issues that slowed construction over the past year, homebuyer demand remained elevated. At 77.8 (on a 100-point scale), the single-family market remains at high builder confidence levels.

Although there has been a 5.1-point drop since Q2, and a seven-per-cent decline since Q1, the HMI remains at a high level, considering the impact of the pandemic as well as the supply chain and labour issues the industry has been facing for almost two years. On average, across Canada, the rise in lumber prices has increased the builder costs on a typical home by $34,562, which is 1.8 times higher than what it was in Q1 2021. According to the CHBA HMI results, 55 per cent of builders said that they are delaying some pre-sales and/or development due to ongoing price volatility.

The majority of single-family builders rated current and future conditions as good (73 and 59 per cent, respectively) while 42 per cent of single-family builders rated the traffic of prospective homebuyers to be high to very high (74 per cent). Only 13 per cent of builders noted traffic to be low, 88 per cent of which noted that the traffic is indicative of home sales slowing.

Multi-family housing

However, the deceleration in investment in building construction, housing starts, building permits and home sales seems to be a normal effect. According to the Royal Bank of Canada, over the past year, housing starts across Canada have been their strongest since 1977, and the number of new housing units currently under construction is at an all-time high. After reaching incredible highs, a return to more typical levels of activity can be expected.

On the multi-family housing front, the CHBA HMI was 77.6 in Q3, compared to 83.9 in Q2. The 6.3-point decline is explained by both the pandemic-related supply chain issues and stress test, as 32 per cent of multi-family builders indicated that it had significantly impacted their sales. The majority of multi-family builders rated both current and future conditions as good (72 and 63 per cent, respectively), while 38 per cent indicated the traffic of prospective homebuyers was high to very high.

“We’re coming off of record highs in terms of demand in the housing market and, in turn, builder confidence was reflective of that in the early part of the year,” says Kevin Lee, chief executive officer of the CHBA. “Now we’re coming back to what is still a pretty strong market, but it’s down from those record highs.” The survey – based on input from more than 300 builder/developers on current and future conditions, and buyer demand – is considered a leading indicator of health of the Canadian new home market.

Surprising findings

Surprising key findings include the $57,590 increase in construction costs for a 2,374-sq.-ft. home, as well as the fact that supply chain issues – mainly appliances, plumbing materials and windows – have resulted in almost seven weeks in delays in home completions for builders across Canada. Sixty-one per cent of builders stated that access to trades is difficult, while 64 per cent of builders across Canada noted that federal government support programs, such as the Canada Recovery Benefit, are impacting their ability to find workers for their job sites.