And it’s no longer any big secret why. Can you say “changes to the mortgage environment?”
Federal finance minister Jim Flaherty announced in February that mortgage rules would change and the Bank of Canada also warned that mortgage rates would finally start to move off historical lows.
So, builders and prospective buyers had plenty of notice — but until the end of May, at least, the new home market was still churning away.
Figures from Canada Mortgage and Housing Corp. show that in the Calgary region in May there were 634 construction starts of detached single-family homes, an increase of 66 per cent from a year ago and just eight fewer than in April.
For the first five months of this year, holes were dug for 2,804 detached homes compared to 1,175 for the same period in 2009 — a 139 per cent jump.
Yes, there is a slowdown in the wind. How much is anybody’s guess.
“Although the gain after five months has been impressive, the rate of increase is expected to moderate over the balance of the year due to higher mortgage rates, rising inventory levels and comparatively stronger activity in the latter half of 2009,” says Richard Cho of CMHC in the federal agency’s monthly activity report.
Dave Hooge of Stepper Custom Homes says that after a strong May — the strongest month this year for the veteran building company — buyer interest is waning.
“Traffic was down and continues to be less each week,” says Stepper Homes’ new president — as well as general manager. “Less traffic through May, but more sales means we saw some motivated consumers probably due to concern regarding interest rates.”
His guess about how long this slowdown will last?
All he says is that there will likely be moderation for this year and into 2011. How deep that moderating trend will likely get, he didn’t say.
An old hand and now the new head honcho at Stepper Custom Homes, Hooge started doing double duty recently when company chairman Harry Stepper appointed him to the dual roles.
Hooge has been with Stepper for 13 years — first as a site superintendent, then as construction manager, and finally as general manager for the past five years.
Yes, the moderation Hooge talks about has to do with mortgage changes, but there is also the MLS environment to think about.
Figures from the Calgary Real Estate Board show that 1,262 sales in May were lower than in April and in May of last year. At the same time, new listings on a year-over-year basis are up to 1,221 from 998.
“I believe this recent decline in sales is the result of an unsmooth transition from a first-time buyer market to a move-up market,” says board president Diane Scott. “It is likely that investors who waited out 2009 are now listing second homes and condos, giving an added boost to our inventory.”
Hooge says consumers shopping the resale market have plenty to look at, and with mortgage changes in the system people may have “a sense of less urgency” to buy.
“But with lot inventory being a concern for some builders, new homes may not be as easy to come by going forward, especially in some of the premiere communities,” he says.
Stepper Homes doesn’t really cater to the first-time buyer, but Hooge says that with the average price going up, there will likely be fewer of them in the marketplace.
“We anticipate affordability becoming more and more of an issue, prompting us to develop new and unique ways of meeting this need through plan design nd other interesting processes,” he says.
In an earlier Calgary Herald interview, Todd Hirsch, senior economist at ATB Financial in Calgary, said Alberta home builders started 24,200 new units in May using a seasonally adjusted annualized rate (used for economic or business data, such rates attempt to remove seasonal variations, creating more accurate comparisons from month to month).
That’s down from April, when housing construction starts topped 32,000, but still more than double the level from a year ago.
In an analysis, Hirsch wrote that residential construction in the province appears to be “succumbing to a slight uptick” in borrowing costs.
“The drop in housing starts in Alberta is most likely due to rising interest rates — or at least the expectation of rising interest rates,” he said. “Rates did, in fact, start to rise in April, but then actually pulled back a bit in May when global equity markets and commodity prices were knocked down.”
But Hirsch said the expectation is for mortgage rates to rise throughout the second half of this year.
That, combined with “global turbulence shaking energy prices,” will mean real estate in Alberta may remain a bit flat.
At the national level, Canadian housing starts fell 6.3 per cent to 189,100 annualized units in May.
“The surprise so far in 2010 had been how quickly starts had ramped up from their depressed levels a year ago,” said Doug Porter, deputy chief economist with BMO Capital Markets.
“Building is expected to slow markedly over the summer as builders respond to the broader cooling in Canada’s previously white-hot housing market.
For instance, it now appears that existing home sales were below year-ago levels last month.”
Derek Burleton, vice-president and deputy chief economist with TD Economics, said the CMHC housing starts data suggests that the rebound in home-building activity from last year’s recession “is quickly running out of steam.”