Residential construction slow but steady, despite weak economy: CMHC

StarPheonix, May 9, 2016 –

Despite the ongoing downturn in commodity prices curbing demand and putting downward pressure on prices, Saskatoon’s residential construction sector remains relatively stable, according to a new report from the Canada Mortgage and Housing Corporation (CMHC).

“The big take-away is that we’re seeing sort of a steady pace in terms of housing starts (but) the industry is still facing weak economic conditions, just as they did last year,” said Goodson Mwale, CMHC’s senior market analyst for Saskatchewan, adding that construction is well below peak levels.

Saskatoon builders started work on 238 new units in April, bringing the year-to-date total to 604, down 13 per cent from the 695 housing starts recorded in the first four months of 2015, the CMHC reported. The decline was driven by a 19.1 per cent drop in the number of multi-family units under construction; by comparison, single-family home starts slid 3.7 per cent.

From a wider perspective, the city’s housing start trend — a six-month moving average of the seasonally adjusted annual rate — was 2,496 last month, up nine per cent from the March trend of 2,290 units. By comparison, there were 2,293 housing starts in the city last year and 3,531 the year before.

Mwale attributed the slowdown to low commodity prices — oil, potash and uranium prices are all well below peak levels — slowing net migration and employment growth, the two main drivers of housing demand. While those market fundamentals remain weak, construction has slowed but not stopped, he added.

“(Builders) will slow the pace depending on the environment, but we can’t say that it’s stopped,” Mwale said. “People still need places to live. There’s still some level of demand for new housing. (But) it has slowed from a rapid pace.”

Saskatoon’s residential construction sector is slower than it was in 2013 and 2014, when it posted “record numbers,” but the radiating effects of weak commodity prices do not appear to be causing alarm among the city’s builders, according to the CEO of the Saskatoon and Region Home Builders’ Association (SRHBA).

“They definitely don’t appear to be affecting the market that we represent,” Chris Guérette said. “If you look at how long it takes to sell a property, the turnover rate with new construction is still very, very healthy. Nothing has stalled. Activity is still very productive and healthy.”

The turnover rate is an industry benchmark that compares the cost of goods sold to inventory on hand. Guérette said the city’s residential construction turnover rate is currently 1.26, stronger than the 1.02 recorded last year and as high as it’s been since 2012, when it touched 1.51.

“There’s absolutely nothing alarming here,” she said, adding that local builders are busy and SRHBA’s membership is stable.

While the recent contraction likely forced some smaller builders out of business, more experienced companies are managing the downturn by minimizing speculative construction and carefully tracking inventories, according to the CEO of the Saskatoon Region Association of Realtors (SRAR).

“I think the builders have a pretty good handle on the market. They’re not going to spread themselves too thin and commit to spec homes that they’re going to sit on for a long period of time,” Jason Yochim said, noting that the city’s home builders have largely caught up to demand and many are tackling renovations instead of new builds.

Yochim said while he expects the sector to remain slow through 2016, he’s “cautiously optimistic” it will start expanding next year. That could change if the economy takes another significant blow — perhaps in the form of a poor harvest — but the outlook is currently positive, he added.

“The tap never turns right off,” Yochim said. “There’s still people who have plans to build that house, or who are moving into the city or moving up from a small home to a larger home.”

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