Canada’s home market could feel some relief from the influx of new inventory expected in the coming months. According to the CMHC, the number of housing construction projects started in September remained at a record high. BMO Capital Markets emailed investors to report a record number of apartments are now being built. Since it takes time for construction to be finished, expect a flood of new inventory to hit the market in the coming months.
Numerous new residential developments are now under construction in Canada. Starts on new Canadian homes have dropped from a record high, but they are still around all-time highs. New housing starts in September were at a seasonally adjusted annual rate (SAAR) of a million. It’s lower than the all-time high, but it’s still rather high. BMO senior economist Robert Kavcic called it “a reminder that there is plenty of homebuilding going on in Canada.”
A Historic Number of Housing Units Are Being Built in Canada
The bank noted the new record of nearly 500,000 units that are now being built. This is, after accounting for population growth, one of the largest construction booms in history. Not since the 1970s has Canada had a construction boom on this scale One major distinction between the 1970s and the present is the prevalence of single-family dwellings in the former era. These days, most of these are multi-family dwellings, which take a lot longer to complete. The anticipated surge in supply resulting from the ongoing disaster aid is not yet here, but it will certainly come all at once.
When compared to the 1990s, when the two markets were somewhat even, there are now about 5 times as many multis being built. Kavcic noted that the growing gap between starts and finishes on the graph from the early 2000s parallels the rise in the number of dwelling units being constructed. He further added, “we continue to develop pretty much all that we can and those units take more time to complete than in the past.”
As home prices in Canada decline, new construction homes will become available
Costly borrowing and less borrowing power are two ways in which rising interest rates are dampening consumer spending. Investors, who now make up a sizable portion of the market, are seriously put off by this. They make up over half of the condo market in hotspots like Toronto. As a result, we anticipate a moderate slowing in the pace of future acquisitions.
The fact that so much aid is on the way should be considered a major victory. Home prices will fall as a result of monetary policy, and then it will fall to the ground. Financial institutions like BMO and RBC have already warned that rising interest rates will cause a revaluation of the market. Following such a price adjustment, an influx of supply may help to maintain current low prices.
