Declining Homebuilder Sentiment Highlights Need for Policy Changes: CHBA

In the third quarter, builder sentiment across the country continued to decline according to the results from the Canadian Home Builders’ Association (CHBA) 2024 Q3 Housing Market Index (HMI).

The report noted that Ontario and British Columbia in particular, are in dire circumstances.

According to the report, the single-family HMI recorded a score of 27.4, which is down 2.5 from last quarter. The multi-family HMI is down 4 points from last quarter with a score of 28.5.

Both indexes are approaching the record lows seen in the third quarter of 2023. While lower interest rates and other policy measures being implemented should help increase sales activity eventually, fixed-rate mortgages, the most popular mortgage product in Canada, have not yet gone down enough to improve affordability and result in more sales activity.

Underlying regional trends in builder sentiment have widened, according to the report. Builder sentiment was not good in Ontario, which indicates that no builders experienced good selling conditions. Sentiment in British Columbia reached record lows, while the Prairies and Atlantic Canada fell from mildly positive sentiment to mildly pessimistic.

The multi-family HMI in the Prairies, while still strong, was less optimistic this quarter. The sole positively-trending index of all the regional breakdowns is the multi-family HMI in Atlantic Canada, which is only responsible for less than 5 per cent of national starts.

This data emphasizes the need for a continued and increased multi-pronged approach to help affordability challenges caused by the country’s lack of housing supply, which should include monetary and macroprudential policy easing as well as other housing policy measures at all levels of government to facilitate building the homes needed to close the supply gap.

The federal government’s expansion of allowing 30-year amortization periods for insured mortgages for first-time buyers and all buyers of new construction homes, as well as a higher limit on insured mortgages to reflect today’s house prices, are due to come into effect on December 15.

This will help ease the pressure for a portion of buyers trying to get into the market while stimulating new home construction. Other measures, such as CHBA’s recommendation to overhaul the GST charged on new homes, and to change the stress test to be more dynamic, should continue to be explored, according to CHBA.

CHBA said it is also worth noting that looking at housing start numbers to gauge the health of the industry does not tell the full story when it comes to homes for ownership. Housing starts data up to August, relative to 2023, was flat, as opposed to declining.

When housing start numbers are further analyzed, CHBA noted that that while there was some growth in the number of units slated for the rental market, housing starts for homeownership were down 17 per cent through the first nine months of the year relative to 2023, hence the consistently downbeat results of CHBA’s HMI.