CHBA’s latest Housing Market Index highlights need for housing policy changes

Results from the Canadian Home Builders’ Association (CHBA) 2024 Q2 Housing Market Index (HMI) revealed that home builder sentiment is negative for the eighth consecutive quarter and is even lower than Q1 2024.

CHBA said that the majority of builders believe further rate reductions and/or more time is required in order to turn the market around. A total of 61 per cent of builders expect to have fewer housing starts in 2024 than 2023 and those builders expect to build on average half the numbers of homes they did in 2023.

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.

Record low HMI numbers, in British Columbia and Ontario point to continued shortfalls in housing starts, said CHBA, noting that  65 per cent of builders said that the level of interest rates has caused them to build fewer units than they would have otherwise, and 31 per cent saying they have cancelled projects.

For Ontario, record lows of 11.6 for both the single- and multi-family HMI point to severe drops in housing starts ahead, according to CHBA, as well as a worsening deficit in housing supply. British Columbia is not much better, and the extremely low HMI values in both provinces are reflective of the very high prices and the inability of buyers to access mortgages.

According to CHBA, 30-year amortizations for first-time buyers with insured mortgages on new construction homes will help more young people and new Canadians become home buyers and noted that more policy action is needed on mortgage rules, development taxes and municipal processes to enable more supply to be built.

“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 1, 2024, 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,” said 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.”