Initial interest rate lowering not enough to offset restrictive mortgage rules and other barriers to increase new home sales
OTTAWA – August 22, 2024 – Results from the Canadian Home Builders’ Association (CHBA) 2024 Q2 Housing Market Index (HMI) showed even worse builder sentiment than Q1 across key regions of the country. The broadly negative view about the health of new home sales indicates that housing starts activity, at least for homeownership, will not pick up substantially any time soon. Record lows for the HMI in Ontario and British Columbia are particularly worrisome, given that these provinces are facing the greatest affordability challenges and have the largest need for much more housing supply. What’s more, the full effects of the slowdown have yet to be felt in housing starts numbers because of long building timelines, especially for multi-family buildings.
The HMI is a sentiment indicator that assesses current selling conditions, expectations for selling conditions over the next six months, and the level of sales office traffic (or other measures of prospective buyer interest). As such, it is a proven indicator of expected housing starts six months and beyond. The single-family HMI recorded a score of 29.9 (out of 100), which is 5 points lower than in the previous quarter and 10 points lower than Q2 last year in 2023. The second quarter 2024 multi-family HMI score is 32.5, which is 5.4 points lower than in the previous quarter and 8.5 points lower than Q2 from a year ago.
Most troubling is that sentiment in Ontario and British Columbia reached new record lows, signaling a worsening housing supply deficit to come in two key provinces where affordability is most dire and most in need of new supply. For Ontario, record lows of 11.6 (out of 100) for both the single- and multi-family HMI point to severe drops in housing starts ahead, and a worsening deficit in housing supply. BC is not faring much better, with a single-family HMI of 17.8 and a multi-family HMI of 32.5.
The extremely low HMI values in Ontario and BC are reflective of both the very high prices in those provinces and the inability of buyers to access mortgages. Larger urban centres in those provinces have high development taxes, municipal processes in many cases that stifle supply, and the largest housing supply deficits in the country, all of which make house prices higher than they should be.
As a result, nationally, 48% of HMI respondents stated that they are building fewer units than they otherwise would have as a result of challenges with mortgage qualifications for their customers, and 22% have stated that lack of sales has led to the cancellation of projects. Overall, 61% of respondents expect to have an average of half the number of starts this year compared to 2023.
“The slowly dropping interest rate environment is not enough to counter the restrictive mortgage rules contributing to buyers’ inability to enter the market with today’s house prices. Canada continues to need both more supply and changes to mortgage rules to help drive the construction of that supply. If buyers can’t get better access to mortgages, and municipalities don’t lower development taxes and address the barriers to home building, the chronic undersupply of homes will only get worse in many areas of the country, which will drive up house prices again. Much more policy change is needed to turn the tides and get housing supply momentum underway,” said CHBA CEO Kevin Lee.
As of August 1st, first-time buyers of new construction homes can access 30-year amortizations on insured mortgages. “This is an important action to help the next generation of well-qualified individuals into the market. We do need more relief on the mortgage front though, like expanding 30-year amortizations on all insured mortgages for new construction,” explains Lee. “We also need revisions to the mortgage stress test to make it dynamic and lower it at higher rates. Every level of government must tackle this problem from every angle, in concert.”
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MEDIA INQUIRIES
Journalists wishing to interview Kevin Lee, Chief Executive Officer of the Canadian Home Builders’ Association are encouraged to submit their request by email to media@chba.ca.
About the HMI
CHBA’s HMI provides a leading market indicator for both the single-family and multi-family markets in Canada, before permits and starts. Released on a quarterly basis, the HMI provides insight into the industry, including many of the issues that are affecting housing affordability, with a strong correlation to future housing starts. The data for the CHBA HMI comes from an exclusive panel of hundreds of CHBA home builders and developers from coast to coast. Every quarter, this panel responds to a series of questions about market conditions. CHBA then uses proprietary statistical analysis to prepare the quarterly HMI. In addition to the standard HMI questions, each quarter CHBA asks “special questions” that allow the Association to gather data and insights into current issues affecting the industry across the country.
For more information on CHBA’s HMI, including the detailed methodology and key takeaways, please visit the official CHBA HMI webpage.