Demand kicks up new-home building

Supply Shortage
Garry Marr, Financial Post Published: Tuesday, November 10, 2009


The Canadian housing market's surprising turnaround is spreading to new-home construction as developers scramble to respond to a supply shortage that has sent pricing soaring for existing homes.

But any increase in construction of new homes will likely not surface fast enough to feed the demand for housing still pumped up by record low interest rates.

Canada Mortgage and Housing Corp. said yesterday 157,300 units were built last month on a seasonally adjusted annualized basis, a 5.4% increase from a month earlier. Annualized starts dropped as low as 118,500 in April.

"There is not a lot of inventory around," said Gary Friend, president of the Canadian Home Builders' Association, adding his industry has been careful not to speculate. "We have to watch our Ps and Qs, as we try to meet this demand."

Any increase in supply would be welcomed as a shortage of new listings has caused a spike in prices. The Canadian Real Estate Association said last month existing home prices across the country were up 13.6% in September from a year ago as supply was short in almost every city.

The shortage has yet to ease despite a belief higher prices would coax homeowners to sell. This month the Toronto Real Estate Board reported sale prices in October were up 20% from a year ago.

"The existing-homes market is in short supply so we've gone from a buyers' market to sellers' market," said Bob Dugan, CMHC's chief economist. "The way it gets linked is you get some spillover into the new-homes market and that's starting to happen."

CMHC has upped its forecast for new-home construction for 2010 to 164,900 from 150,300 though that's still off the 211,000 starts of 2008.

Paul Ferley, assistant chief economist with Royal Bank of Canada, said "at the margins" new-home construction could help ease the housing crunch though builders "can't turn on a dime."

gmarr@nationalpost.com

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