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March 09, 2010
By Bill Mah, edmontonjournal.com
March 9, 2010 8:19 AM

EDMONTON — Builders started three times the number of Edmonton-area homes in February as they did a year earlier -- showing just how far the housing market had fallen last year.

But now there are worries that possible higher interest rates and tighter lending restrictions could dampen the rebound's bounce.

Total housing starts in the Edmonton census metropolitan area reached 642 in February, compared with 213 in February 2009, Canada Mortgage and Housing Corp. said Monday.

Last month's building activity approached February 2008 levels, when housing starts totalled 692.

It was also was the eighth consecutive month of year-over-year increases in housing starts, said the federal agency.

In the single-detached sector, builders poured foundations for 484 starts in February, more than three times the 149 houses started in the Edmonton region the same month last year.

So far this year, housing starts have totaled 1,219, up from 626 in the first two months of 2009 when builders downed tools in a weak economy and what observers called an overbuilt housing market -- which was also competing with large inventories of existing homes.

Guy St. Germain, Edmonton-region president of the Canadian Homebuilders' Association, said his group's members are confident the current strong market has staying power.

"There is optimism that the market is showing stability for 2010," St. Germain said. "Single-family homes are selling well and multi-inventory continues to decline."

The resale market is near balanced and there is upward pressure on prices in both single and multi-family sectors, he said.

"Certainly, our builders are as optimistic as they have ever been since probably early 2007. Let us hope that a jump in interest rates and further constraints in CMHC and other mortgage insurers in eligibility criteria does not dampen demand."

Also released Monday was a national survey showing Albertans are the most likely, at 13 per cent, among Canadians to say they are very likely to buy a home within the next two years.

The RBC Home Ownership Survey also showed that among those looking to buy, Albertans were most likely to say they will buy within the next year, at 40 per cent.

The rebound in Alberta's home-building this year is especially evident in the single-home market, where builders started 881 units, compared with only 296 during January and February of last year.

"With inventories down considerably from a year prior, builders are strengthening production in preparation for the important spring selling season," said Richard Goatcher, CMHC's senior market analyst in Edmonton.

Multiple-dwelling starts also increased year-over-year in February to 158 units, compared with only 64 a year earlier. After two months, multifamily starts are up 2.4 per cent to 338 units, compared with 330 started in the comparable 2009 period.

Gains in semi-detached and row housing are offset by continued weakness in new apartment construction. Goatcher said high new apartment inventories in parts of Edmonton will curtail activity in the sector for much of the year.

The February recovery is also seen across Alberta. Housing starts in the seven largest centres totalled 1,562 homes in February, compared to 574 starts a year earlier -- despite lower activity in Wood Buffalo and Grande Prairie.

Todd Hirsch, a senior economist at ATB Financial, said the province's housing market is supported by low interest rates, better afford-ability compared with 2008 and an improving economy.

Hirsch predicted housing starts will remain near their February levels for the rest of the year -- better than last year, but still soft compared to the 10-year average.

"While 2010 will probably see improved labour market conditions, interest rates are almost certain to start rising in the second half of the year," Hirsch said.

"That will bump up the cost of mortgages, which could take some of the steam out of the market. As well, changes introduced by Ottawa to tighten lending conditions and speculative activity in real estate could also put a bit of a damper on things."

March 06, 2010

March 6, 2010

VICTORIA, B.C., March 6, 2010 – The Canadian Home Builders’ Association (CHBA) today called on the federal government to lead efforts that would “lay the groundwork for new, more effective approaches to the full range of tax and regulatory issues that challenge housing affordability and choice”.

Incoming CHBA President Victor Fiume said that “the strong performance of the housing sector through the recession has been tied primarily to two factors: abnormally low interest rates, and price discounting by builders on their projects and inventory”.  “Neither of these factors is sustainable”, noted Fiume.

“When we talk about housing affordability”, Fiume continued, “we must focus on fundamentals – on what a home actually costs – not on conditions that are artificial or temporary.”

However, Fiume noted that governments have yet to “get it” in terms of the costs they impose on new home buyers.

“Across Canada, government-imposed costs on a new home range as high 18%, and continue to rise, as municipalities increase their taxes, fees, charges and levies.  The introduction of HST in Ontario and B.C. will add to this, for homes priced above the rebate threshold.

“As a result, I expect that we will see an increasing number of communities where government-imposed costs are more than 20% of the total price of a new home”, Fiume noted.

As one step in addressing the impact of government-imposed costs on housing affordability, the CHBA has called on the federal government to take action to restore fairness in how GST is applied to new homes and home renovations.

Fiume restated the CHBA’s recommendation that the federal government, “adopt the single threshold/full rebate approach for the GST New Housing Rebate across Canada, and a commit to review and adjust the threshold level over time”, and that it “introduce a permanent 2.5% GST Home Renovation Tax Rebate available to all homeowners”.

Fiume also pointed out that the financial crisis and recession have left the residential construction industry, and Canada, with many challenges, including: sustaining economic recovery as governments wind down their stimulus programs, confronting the impact of more normal interest rates, and the growing need for governments to rein in budgetary deficits.

“These are elements of the ‘new normal’ that our industry, governments, and consumers must adjust to.  To understand fully what the ‘new normal’ means, we have to focus on the singular importance of housing affordability”, he said.

Fiume called on the Minister responsible for Canada Mortgage and Housing Corporation, the Honourable Diane Finley, to initiate a “high level intergovernmental body, or forum” that would, “address the big picture” in relation to housing, and “help to ensure that federal and provincial policy is better integrated and better informed”.

Fiume was clear that this intergovernmental forum would need to recognize that “the assumption that public costs can be underwritten by dramatically increasing real estate values in perpetuity has been put where it belongs – in the economic trash heap.”

Fiume noted that a permanent 2.5 per cent GST Home Renovation Tax Rebate would also address the massive problem in Canada of billions of dollars in tax revenues lost annually through the underground economy.

He said one of the significant lessons from the “stunning success” of the Home Renovation Tax Credit is that homeowners will respond to a modest tax break by getting written receipts for renovations. A permanent rebate “will boost government revenues at the expense of tax cheaters and illegal underground cash operators.”

He said the Department of Finance estimates as many as 4.6 million households took advantage of the tax credit. This is a “remarkable response” that proves homeowners will pay attention when government acts to reduce the cost of maintaining and improving their homes.

Turning to the environment, Mr. Fiume thanked the federal government for supporting the industry’s leadership in building homes that are substantially above government-mandated requirements, a system that supports innovation and allows for the incorporation of 0-5pnew technologies as they mature.

He said there is a need to reach out to other levels of government. “Without better research and information, particularly in terms of the integrated ‘big picture’, our progress on the environment front risks being unfocused, ineffective and undermined by governments working at cross-purposes. Unfortunately this is already happening.”

He proposed a second new intergovernmental body to focus on technical and analytical support, working with the industry, to help build greener communities and cities. He suggested creating such a capacity within the National Research Council (NRC), given its current mandate and expertise.

 

March 05, 2010

The GST  New Housing Rebate is available in full only to purchasers new homes priced up to $350,000. It is phased out progressively for new homes priced between $350,000 and $450,000. New homes priced at $450,000 or more are ineligible for any portion of the rebate. In 1991 the government made a commitment to revise the thresholds in line with market prices to protect housing affordability over time.  The Technical Paper on the GST says: “The government will review these thresholds at least every two years and adjust them as necessary to ensure that they adequately reflect changes in economic conditions and housing markets.” The rebates have never been adjusted.

Upon implementation of the Harmonized Sales Tax (HST) on July 1, 2010, British Columbia has set a threshold of $525,000 – purchasers of new homes up to that amount will be eligible for a 71.43 per cent rebate of the provincial portion of the HST paid on a new home to a maximum of $26,250. Homes above $525,000 will receive a flat rebate of $26,250.  

In Ontario, the rebate threshold is $400,000. Buyers of new homes will be able to claim a rebate of 75 per cent of the provincial portion of the HST paid on the purchase of a new home to a maximum of $24,000. Homes above $400,000 will receive a flat rebate of $24,000.

About Victor Fiume and the Canadian Home Builders’ Association

Victor Fiume is the General Manager of The Durham Group which specializes in the development of single-family homes and townhouses.  He is a former President of the Ontario Home Builders’ Association and the Durham Region Home Builders’ Association.

The Canadian Home Builders’ Association (CHBA) is the national voice of the residential construction industry, representing more than 8,000 member firms across the country. Membership comprises new home builders, renovators, developers, trade contractors, building material manufacturers and suppliers, lenders and other professionals in the housing sector.

March 04, 2010

March 4, 2010

VICTORIA, B.C., March 4 -- The Canadian Home Builders’ Association (CHBA) said today that Finance Minister Jim Flaherty’s stay-the-course budget is the right approach to complete Canada’s economic recovery.

CHBA President Gary Friend congratulated the Finance Minister for his determination to return to balanced budgets in five years without increasing taxes. The focus on employment opportunities and investment in growth is the right federal direction, he said.

Mr. Friend expressed regret that the budget missed the opportunity to implement longoverdue changes to the GST New Housing Rebate. “This is the single most important step the federal government can take to protect housing affordability and choice. What Canadians need now are permanent policies that end the erosion of housing affordability.”

When the GST was introduced in 1991, the full GST rebate applied to homes selling for $350,000 or less. Those homes cost $550,000 today but the rebate level has not changed, as the government committed to do in 1991.

The CHBA was also disappointed that the budget did not announce a permanent replacement for the hugely-popular Home Renovation Tax Credit introduced in last year’s budget. “A permanent 2.5% GST Home Renovation Tax Rebate would restore fairness to how home renovation is impacted by the GST, and also go a long way to combating the massive underground “cash” activity in home renovation”, Mr. Friend commented.

Mr. Friend welcomed the federal government’s renewed commitment to municipal infrastructure investments. He said the government’s support for core infrastructure and CMHC’s municipal infrastructure lending program for residential development show federal leadership for a priority that involves all levels of government. “Governments must recognize that infrastructure can no longer be financed through the mortgages of new home buyers”, he commented.

The Canadian Home Builders’ Association (CHBA) is the national voice of the residential construction industry, representing more than 8,000 member firms across the country. Membership comprises new home builders, renovators, developers, trade contractors, building material manufacturers and suppliers, lenders and other professionals in the housing sector.

 

February 25, 2010

February 25, 2010

The Altus Group has completed its analysis for the CHBA of the federal government’s
recently announced requirement for a minimum down payment of 20 per cent for
government-backed mortgage insurance for “non-owner occupied properties
purchased for speculation.”

You can download this report by clicking HERE.

The Report concludes that this new requirement will:

have little or no impact on any aspects of the market that could be considered “speculation”

curtail activity in an important component of the Canadian housing sector: contributions to the rental stock from small income investors

We are submitting this analysis to the federal government and recommending that the new
requirement be given serious reconsideration.

 

February 23, 2010

February 23, 2010

Consumer confidence is no longer the critical problem it was a year ago for most new home builders, according to the Winter 2010 Pulse Survey of the Canadian Home Builders’ Association (CHBA).

The survey reported that only nine per cent of builders, nationwide, cited consumer confidence as a critical problem compared to 54 per cent last winter. In Ontario it was still a critical problem for 17 per cent of the respondents.

Higher traffic at new home sales sites among first-time buyers, move-up and move-down segments of the market was reported by builders across the country. A year ago most builders reported lower traffic.

New home builders expect that housing starts will remain low, at about 142,900 units in 2010, slightly below the 149,100 units started in 2009 and well below levels recorded between 2002 and 2008. No region expects starts to be higher this year than last.

Rising costs due to development charges jumped to the top of the list of concerns for new home builders in the 2010 survey. About a third reported it as a critical problem, nationwide, almost two-thirds in Ontario. Rising costs due to serviced lot prices was also high on the list in most regions, 35 per cent in Ontario.

Two-thirds of new home builders expect that single-detached house prices will increase over the year.

CHBA renovator members expect increased activity for the second straight year but are increasingly concerned about losing work to the underground economy. Respondents were asked to estimate the proportion of new home building and renovation work in their market area that was undertaken on a “cash deal” basis, without paying taxes. These low-cost loans should lower the cost of borrowing for municipalities and can be used to fund the municipal contribution for cost-shared federal infrastructure programming.

Sixty-seven percent of the respondents estimated that more than half of all small repair jobs were lost to the underground economy. Forty-two per cent estimated that the same number of renovations costing $5,000 or less were lost. Sixty-five per cent estimated that about a third of small renovation construction activity in their market area was being done on a cash deal basis. Cash deals were believed to be less common for renovations costing $20,000 or more. Work in the underground economy was believed to be more prevalent in Ontario and British Columbia for all sizes of renovations and repairs and in Quebec for new home building.

About the Pulse Survey

The 43rd Pulse Survey of new home builders and renovators was conducted by the CHBA in December 2009 and January 2010 with the assistance of Canada Mortgage and Housing Corporation (CMHC) and Natural Resources Canada. A total of 387 new home builders and renovators responded to the survey. Results were tabulated and analyzed for the CHBA by Altus Group Economic Consulting

 

February 16, 2010

February 16, 2010

Since the beginning of December, the CHBA has been making continuous representations to the federal government about the state of the housing industry in Canada.

As you are aware, some commentators have argued that Canada risks the sort of “housing bubble” experienced in the U.S., now that markets and prices are recovering. This has led to calls for additional restrictions on mortgage lending including higher down payment requirements, and shorter amortization periods.

The CHBA has opposed such measures. We do not believe they are justified or needed. We have also made it clear to the federal government that unwarranted restrictions on mortgage insurance terms could both damage our industry, and imperil Canada’s economic recovery.

Housing markets in Canada remain healthy and stable, and housing demand is supported by economic fundamentals and a growing population. While historically low interest rates have certainly helped to motivate many Canadians to buy a new home, there is little evidence that this is leading to excessive risk-taking by borrowers.

We are not alone in this view. The Bank of Canada, the Department of Finance and Canada Mortgage and Housing Corporation have all stated that there is no evidence of a “housing bubble” in Canada. Other respected authorities, including Genworth Financial Canada and Altus Group Economic Consulting, have reached the same conclusion.

Consequently, the CHBA has very mixed reactions to today’s announcement by the Minister of Finance on rules to be applied to government-back insured mortgages, effective April 19th.

On a positive note, we were pleased that the 5% down payment requirement and 35 year amortization option remain in place for new home buyers. This is certainly the right outcome. Requiring new home buyers to meet the lending standards for the five-year fixed-rate mortgage, even if they chose a shorter term at a lower interest rate, is also prudent.

However, the CHBA was surprised and alarmed that the Minister announced new provisions requiring a 20% down payment for government-backed mortgage insurance on non-owner-occupied properties.

This restriction will impact condominium developers in communities across Canada. There had been no prior consultation with our industry on this matter, nor is there evidence that condo “speculation” constitutes a problem requiring such down payment restrictions.

The CHBA is commissioning research to assess the likely impact of the 20% down payment requirement, including rental supply, and will inform the federal government concerning how its new rules will affect housing markets, and consumers, across Canada. We will keep you informed as our work proceeds.