Not just demand, but supply might also have peaked
Residential construction dips 5.8% in June
Residential construction investment hit a record $43.4 billion in the second quarter of this year — surpassing $40 billion for the first time — but may be starting to cool off after a period of sustained growth.
According to new data from Statistics Canada, investment in residential construction decreased by 5.8 per cent to reach $13.8 billion in June, following a three per cent decrease in May. All provinces reported drops except for Manitoba and Yukon territory.
The decline follows a sixmonth run up in investment, which peaked in April.
Despite the slowdown, residential construction investment in the second quarter was 9.3 per cent higher than the first quarter, stemming primarily from single-family home investments in the larger provinces.
While investment in single-family homes decreased by 7.3 per cent in June, to $7.5 billion, they remain “well above” pre-pandemic levels, the agency said. The June decline was largely due to decreases in Ontario and Quebec, a reversal from Ontario’s position-leading national growth since May 2020.
According to Statistics Canada, investment in residential multi-unit construction was also down by 3.8 per cent in June, to $6.2 billion. More than half of the provinces reported declines, with Quebec posting the largest — mainly in Montreal — followed by Ontario and British Columbia.
The cooling in residential investment comes as housing sales dropped for a fourth straight month in Toronto, but a shortage of available properties kept prices close to the highs they had climbed to earlier this year, according to the Toronto Regional Real Estate Board.
Meanwhile, Vancouver’s real estate board said new listings in July were 12.3 per cent below the 10-year average for the month. The number of sales and properties on the market also declined in Montreal.
It’s clear the market is still “incredibly healthy and positive,” said Kevin Lee, chief executive of the Canadian Home Builders’ Association, in an interview.
“The fact that we’re slowing down a little bit, we’re slowing off compared to record levels and are still certainly much further ahead in terms of investment compared to prior to pandemic,” he said.
The investment gains has helped to begin chipping away at Canada’s housing supply shortage, Lee said, “but we still have a lot of catching up to do to get enough supply into markets to really help Canadians and help quell increasing house prices.”
The CHBA’S latest housing market index also points to “strong builder confidence in the coming months.” The agency’s residential construction industry indicator found sentiment in the second quarter among single-family builders stood at a bullish 82.9 points and for multifamily 83.9, on a 100-point scale.
The index is based on a panel of Canadian builders who rate market conditions for the sale of new homes now and in the next six months, and the traffic of potential homebuyers. The CHBA noted the single-family market sentiment had dipped slightly from the first quarter, when it sat at 83.2, but said the change was indicative of a “slight levelling out of sales after the spring rush, and a reflection of ongoing challenges with building material availability.”
The association noted 80 per cent of builders have reported increases in lumber costs of over $20,000 per house, and 30 per cent saying they faced increases of over $40,000 per house. Forty-two per cent of builders reported construction cost increases of more than $20,000 over and above lumber.
The multi-family market sentiment rose 2.3 points since the first quarter, which the association attributed to a “rebounding” market after a slowdown during the pandemic.