NEW HOME BUILDERS FACE AN ‘AVERAGE’ YEAR: ANALYST
Construction could drop between 12 to 15 per cent after a strong 2014
Alberta’s new home builders are facing an “average” year, not a disastrous year, CHBA-Alberta’s economic analyst told members at a recent industry conference.
Coming off boom construction years, slowdowns in areas such as starts and sales are to be expected, but the numbers reveal that the market is still chugging along, Richard Goatcher said at the Canadian Home Builders’ Association-Alberta’s Build 2015 conference in Jasper earlier in September.
“There’s some trepidation out there in terms of what’s going on in the economy right now,” Goatcher said, reflecting on what he has heard from builders and other members comment on in his biannual housing starts survey, where he checks the pulse of the new home construction industry in Alberta.
Here are some of the points Goatcher made in his speech:
EMPLOYMENT
“Longer term trends show more people working right now in Alberta than there were last year. Month to month, we’ve seen some job losses. But compared to the job losses in the great recession in 2009 to 2010, it sprang back quite quickly. The overall labour market has remained quite resilient across the province. During the 1982 recession, unemployment moved to very high levels. Unemployment is still relatively low today.”
5- YEAR- MORTGAGE RATES
“Here’s the good news story. We’ve seen what’s happened with mortgage rates over the past 30 years, they’re trending downward. I think they’re pretty much down as low as they can go, and there’s not much talk of them going up in the foreseeable future.”
IN- MIGRATION
“It’s a cyclical event, depending on how well your province is doing compared to everyone else. The numbers are still positive. We’re getting a lot more numbers from people coming from outside of Canada. I would expect we’d see a slowdown in terms of the number of people coming to Alberta from the rest of Canada.” “We’ve had quite high energy prices for some time. WTI ( West Texas Intermediate) has averaged about $45 a barrel over the past 45 years. What you’re looking at today is so-called ‘average.’ ”
RESALE HOME PRICE
“Back in 2005, resale house prices in Alberta were rising on average of 25 to 30 per cent. We knew that was unsustainable. We knew we were pricing a lot of people out of the market. We knew there was going to be a correction. And the great recession certainly brought that on. Then the numbers bounced back to a more sustainable level with price increases in that five-per-cent range. Now we’re into a price decrease this year, but not much. Prices are down on average around the province but only by one per cent.”
HOUSING STARTS
“The peak year was 2006 (for migration), with close to 100,000 people moving here. As the great recession hit, house building took a hit, but sprang back very strong. 2014 was a very good year. It was a record year for multifamily units in Calgary. 2013 was a 25-year-high for multi-family in Edmonton. Starts are down across the province only by a couple of percentage points, largely because we’ve seen a lot of apartment activity in the greater Edmonton area.
“When I did the forecast survey with our members, they were fairly pessimistic about this year. They expected housing starts to drop 20 per cent this year to 32,500 units. And that’s about the same as the average for the past five years. I’m not convinced. I don’t think they’ll tail off so fast. Royal Bank came up with a 12-per-cent drop in housing starts this year.
“For next year, our members are calling for a drop of 12 per cent to 28,600, which when you look at the long-term trend, is not a bad number, but definitely down from 2014. RBC is expecting a drop of 15 per cent to around 30,000 units. Not as strong as 2014, but not a terrible year.”
PANEL
How does the current economic time compare to other downturns? A panel of three industry veterans took up that question following Goatcher’s presentation, reflecting on their own experience and offering some advice. On the panel were Jay Westman, chairman and CEO of Jayman Built in Calgary; Gord Bontje, founding partner of Laebon Homes in Red Deer; and Ralph Hutchinson, CEO of Daytona Homes in Edmonton.
This downturn is different than in 2009-10 because of the weakness of the Canadian dollar, Hutchinson said.
“The impact is higher input costs for manufacturing our product, a cost increase,” he said. “So much of our input costs are in USD, our margins are squeezed — as builders, suppliers, trades — chokes cash flow and chokes profit flow.”
It means there is less room for cutting prices as the hard costs remain.
With Calgary and Alberta’s markets reflective of what is going on in the energy sector, Jayman Built brings in oil and gas analysts and economists to talk to senior management about what they are seeing and predicting to help inform the builder’s decisions.
“They say we could see a pickup in oil prices in late 2016 — a pickup might be somewhere in the low $50s or low $60s. We’re not going to go back to this peak, these high numbers that we’ve had for the past four or five years,” Westman said. “I’d say we could be going into an ’80s downturn with a ’90s supplement. The reason why it won’t be as bad as the ’80s is because our cities are bigger than they used to be.”
But even as downturns happen, the cycle will eventually shift to an upturn, and positioning one’s business to come out of that gate on the right foot is important, Bontje noted.
“When the market recovers, it will probably recover with a different product that it left off on,” he said. “I missed this one in the great recession. I thought the market would come back from the bottom end, which is what is has done before. Because all of the public sector people started buying, it was in the middle of the market.”