Home Builders are Building Fewer Units As Market Slows

The Canadian Home Builders’ Association (CHBA) released its Housing Marketing Index (HMI) for Q3-2023, revealing the industry “remains downbeat”.

Builder confidence is gleaned from CHBA’s HMI for single-family and multi-family builders, both of which edged upwards between the first and second quarters of the year.

Builder sentiment retrenches and reflects broader pessimism after summer rate hikes 

The CHBA Housing Market Index (HMI) for single-family developments and the HMI for multi-family construction fell in the third quarter of 2023, meaning much less housing supply in the quarters ahead.

The Q3 CHBA single-family HMI recorded 33.9, falling 6 points from the previous quarter.

The Q3 CHBA multi-family HMI is 33.6, also falling from the second quarter by 7.4 points. The quarterly decline in both HMIs reflects a broader proportion of HMI respondents holding pessimistic views about current and future selling conditions. Negative views were broadest among home builders in Ontario.

This is the fifth consecutive quarter where both single-family and multi-family HMI readings are well below the neutral sentiment value of 50. If you take a look at the definition guide below, 50 means statements of good and bad are even.

There is a well-established link between the Bank of Canada’s policy rate path and HMI builder sentiment. The HMI plummeted through 2022 from a high of 89 to a low of 26 as interest rates rose and sales traffic evaporated.

The slight rise in the HMI seen in the second quarter of 2023 was attributed to the Bank of Canada’s four-month pause in policy rate hikes providing some buyers with confidence during the spring busy season for home purchases, but with that being over, Q3 didn’t see the rise

The survey continues to highlight industry pain points beyond interest rates. A majority of builders report that municipal processes, regardless of the interest rate environment, are a large drag on their capacity to increase starts.

Furthermore, dependable access to labor continues to be a challenge for projects in the pipeline or underway. As the Bank of Canada and other central banks guide for continued high interest rates, CHBA continues to advocate for a drop in those rates as soon as possible to further guide the government in increasing the housing supply.  

Builder sentiment will most likely stay connected to interest rates, as will depressed housing starts compared to housing supply needs.