Canadian Funding Corporation Reports on Housing Starts 2009-2010
According to Canadian Funding Corporation housing starts in Calgary, Alberta, will decline in 2009 followed by growth in 2010. New home construction in the Calgary Census Metropolitan Area (CMA) will decline for the third consecutive year in 2009 before improving next year. Elevated construction costs, a rising inventory of complete and unabsorbed units, contributed toward lower construction activity this year. Economic uncertainty, job losses and competition from the resale market have also impacted the demand for new housing.
Canadian Funding Corporation reports that this year’s decline in housing starts will be most prevalent in the multi-family sector, though there will also be a reduction in single-detached starts. Overall, total housing starts are projected to decline from 11,438 units in 2008 to 3,700 units in 2009, representing a reduction of more than two thirds. New home starts Economic Forecasts are expected to improve in 2010 as the economy begins to expand again and inventories are absorbed. Under these conditions, total housing starts are forecast to rise to 4,200 units in 2010, up 14 per cent from this year. However this will be well below the annual average of 13,000 units for the 1999 to 2008 period, which was the strongest decade on record for housing starts. Stronger economic growth, higher gains from migration, and a return to balanced conditions in the resale and new home markets will be needed prior to total annual starts rebounding to long term historical averages.
New homes priced lower
High cost producers will be challenged in 2009 as competition for new home sales will be very aggressive. The industry is currently going through some restructuring. With excess capacity in the industry, new home buyers will experience a much quicker turnaround time from start to completion. It is not uncommon to see a house built in four or five months, less than half the time needed for construction when there were labour shortages not that long ago. New home prices will also be effectively lower, as builders offer incentives to entice buyers and pass on lower construction costs. Consumers that re-engage in the new home purchase process will find that the same amount of money this year will buy more house than it would have a year earlier.
New home pricing has been under downward pressure from the resale market and competition amongst builders. The average absorbed price of a single-detached house is projected to decline by 5.5 per cent to $550,000 this year. A further decline of 2.7 per cent in 2010 will take the absorbed average price to $535,000. The average absorbed single-detached price was $561,445 in March 2009, almost unchanged from a year earlier. It should be noted that this average absorbed price reflects homes that were completed and absorbed in March, which is not necessarily the month when the price was negotiated. Assuming the average home was sold prior to initiating construction, the negotiated price was likely agreed upon many months in advance. For the month of February 2009, contractors’ selling prices of new residential homes with similar specifications was 7.1 per cent lower than in February 2008, according to Statistics Canada’s New House Price Index.