On the road to recovery

When it comes to making predictions about the local new home building industry, everybody’s got an opinion. And, while nobody’s perfect, Canada Mortgage and Housing Corporation (CMHC) can be relied upon to provide both a pretty good snapshot of today as well as a fairly accurate prediction for tomorrow. After all, it’s what they do.

Taking a look at 2020, Taylor Pardy, senior analyst economics for CMHC, says housing starts are expected to remain relatively stable as unsold inventory is absorbed by population growth. “There’s a market move towards balance. We may even see modest price increases by 2021.”

Multi-family homes, he says, will continue to comprise a greater share of new starts.

One of the biggest factors in play, says Pardy, is the absorption rate of new homes into the market, where the 2019 pace was similar to 2018, but still down by “about a third” from 2015.

“2019 was a fairly strong year for job creation, with overall employment in Alberta up around four per cent. That’s about 35,000 jobs, 85 per cent of which were full time. There’s always a bit of a lag between improving employment conditions and how that translates down the road into absorptions.”

Until that occurs, he says, the market ultimately still shows evidence of moderate overbuilding meaning, yes, it’s still technically a buyers’ market.

Another positive sign is stronger population growth in Calgary driven by interprovincial and international migration, “fundamental factors coming together but not showing up in the market yet. The more affordable price segments saw recovery first in 2019,” says Pardy. “As could be expected."

The ultimate signal of what’s happening in the market, however, says Pardy, is price, with the average sale price of a new single-detached home in Calgary in 2019 exceeding $672,550. That number is expected to start to climb again as gradual economic recovery drives new home absorptions, decreasing inventories and leading to a healthier, more balanced market.

2020 race is on

Here are the January numbers from Canada Mortgage and Housing Corporation (CMHC).

First, let’s agree to not compare January 2020 to last month, as December 2019 was a huge anomaly with inflated numbers that it simply isn’t realistic to expect to hit again. In fact, December 2019’s total of 2,130 starts represented 18 per cent of all starts last year (Chart 1).

That being said, 2020 is off to a decent beginning with 642 total starts, tracking about eight per cent short of last January. So, although it’s still early and cautious optimism is the rule of thumb these days, things are certainly trending towards the positive.