Posted by Moishe Alexander
Total housing starts are on pace to decline 52 per cent in 2009, reaching 5,550 units. This would represent the lowest level of activity since 1991. A bulk of the reduction in total housing starts is stemming from the multi-family market, where inventory levels remain elevated. As economic and housing market conditions improve, home builders are forecast to increase production by 21 per cent to 6,700 units in 2010.
Single-detached starts have rapidly improved since the beginning of the year when builders cut production in response to lower sales and rising inventory. After the first half of the year, starts were down 33 per cent, though solid gains since June have lessened the decline. Despite the increased starts activity in recent months, this resurgence will not offset the lower production earlier in the year. Single-detached starts in 2009 are on pace to decline four per cent to 4,200 units compared with 4,387 units in 2008. As inventories have declined and sales have increased, new construction of homes is expected to pick-up throughout the forecast period. Single-detached builders are anticipated to increase production by 17 per cent in 2010, with 4,900 units breaking ground.
Lower mortgage rates and builder incentives have supported new home sales, and there has been less competition from the resale market. The inventory of complete and unabsorbed units also peaked at the beginning of 2009 and has since been on the decline. Total supply, which is units in inventory and those under construction, has been reduced to a level not experienced since 2001. With a low level of supply and improved demand, building intentions and construction activity is on the rise. In June, July, and August, building permits were up on average by 59 per cent over the same period in 2008. Single starts in the third quarter have increased 45 per cent above the previous year, following 10 consecutive quarters of year-over-year declines. More spec homes are also breaking ground. At the beginning of 2009, less than five per cent of homes under construction were spec units. In August, however, spec homes under
year when builders cut production in response to lower sales and rising inventory. After the first half of the year, starts were down 33 per cent, though solid gains since June have lessened the decline. Despite the increased starts activity in recent months, this resurgence will not offset the lower production earlier in the year. Single-detached starts in 2009 are on pace to decline four per cent to 4,200 units compared with 4,387 units in 2008. As inventories have declined and sales have increased, new construction of homes is expected to pick-up throughout the forecast period. Single-detached builders are anticipated to increase production by 17 per cent in 2010, with 4,900 units breaking ground. Lower mortgage rates and builder incentives have supported new home sales, and there has been less competition from the resale market. The inventory of complete and unabsorbed units also peaked at the beginning of 2009 and has since been on the decline. Total supply, which is units in inventory and those under construction, has been reduced to a level not experienced since 2001. With a low level of supply and improved demand, building intentions and construction activity is on the rise. In June, July, and August, building permits were up on average by 59 per cent over the same period in 2008. Single starts in the third quarter have increased 45 per cent above the previous year, following 10 consecutive quarters of year-over-year declines. More spec homes are also breaking ground. At the beginning of 2009, less than five per cent of homes under construction were spec units. In August, however, spec homes under
The New Home Price Index (NHPI) has started to stabilize, after declining from its peak in the first quarter of 2008. In the first seven months of 2009, the NHPI was down on average of 7.7 per cent, compared to the same period a year earlier. A majority of the decline is attributed to the house component, as reduced construction activity has taken pressure off input costs such as labour and materials. Land costs are down slightly from a year ago, but for the most part lot prices have held firm. By the end of 2009, new home prices are anticipated to gain more ground and the NHPI will end the year down by an average of 6.9 per cent from the 2008 average level. In the face of higher starts, stability in new home prices is expected to improve into 2010 with the NHPI increasing two per cent. The monthly absorbed average price of a new home has declined since 2008 and appears to be leveling at around $535,000. The average price in August was $534,954 and in September was $537,225, down year-over-year by eight and ten per cent respectively. Readers should note that the absorbed price reflects units absorbed in a given month, which is not necessarily the month when the price was negotiated. The average absorbed price is forecast to fall from $581,800 in 2008 to $560,000 in 2009. With stronger demand conditions and more manageable inventory levels expected for the balance of 2009 and throughout 2010, the average absorbed price is anticipated to increase modestly. Despite the month-over-month gains projected for 2010, it will not be enough to push the yearly average above 2009 levels. In 2010, the average absorbed price will decline 1.4 per cent to $552,000.
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Posted in CMHC, Canada, Housing Starts, moishe alexander