The Canadian Home Builders’ Association (CHBA) released its Housing Marketing Index (HMI) for Q2-2023 on Wednesday, revealing that while builder confidence rallied slightly in the quarter, the industry “remains downbeat” amid interest rate-related headwinds.
Builder confidence is gleaned from CHBA’s HMI for single-family and multi-family builders, both of which edged upwards between the first and second quarters of the year. More specifically, CHBA’s index for single-family builders clocked in at 39.9 in Q2 (up 5.6 points from Q1), while the multi-family index ended up at 41 (up 7.5 points from Q1).
As was the case last quarter, both indexes saw improvement from the lows observed in Q4 2022. Still, CHBA notes that both indexes are “well below” the same measures from Q1 2022, prior to the start of interest rate increases, when the single- and multi-family indexes sat at 89.4 and 88.8, respectively.
“While the spring busy season helped prospective new home sales traffic somewhat, affordability challenges related to interest rates and construction costs remain very much a concern, and have been compounded by the July rate hike by the Bank of Canada shortly after Q2 survey data was collected,” said the organization in a press release from earlier today.
“Converting prospective buyers into sales remains a challenge, as do closings from previous sales. Due to the high interest rate environment, nearly half of CHBA’s panelists reported that buyers are requiring alternative lending solutions and one-third said they are needing to make accommodations for some buyers so they can close.”
As sales slow, 67% of home builders and developers in the CHBA network say that they’re building fewer units (up from 59% in the previous two quarters), while 22% report cancelling projects entirely.
The gravity of the situation is not lost on CHBA CEO Kevin Lee, who says that current conditions — “with construction costs rising, labour shortages, and especially the current financing conditions” — pose a massive threat to unlocking the housing supply the country so sorely needs.