The Conference Board of Canada recently published a fascinating report on Canada's residential construction industry, looking at macroeconomic drivers, industry trends and financial performance.
The board also looked at the changing Canadian housing market and the impact of the multi-family sector, once fairly dormant but now a major driver for the housing industry from coast to coast. Although the research is national and large urban centres such as Toronto, Vancouver and Montreal significantly influence numbers, there are some very important messages for all parts of our country.
Even though the Canadian economy is only expected to realize modest growth, the Canadian consumer is in a stable position. Almost 200,000 new jobs were created last year, unemployment was its lowest in four years and consumer confidence is increasing. This confidence level is buoyed by job and income prospects, although there is still reluctance in certain parts of the country to make major purchases.
Concern has been expressed about debt levels, and the Canadian consumer has heard this message. Between 2005 and 2010, consumer credit (primarily non-asset based or credit cards) was increasing at a rate of 8.5 per cent a year. From 2010 through 2012, this has dropped to 3.2 per cent. As a result, the debt-service ratio has improved considerably from a high in early 2008 to a current low similar to the late 1990s.
All indications are that current low mortgage rates will remain intact for at least another year. Given the economic situation in Europe and other significant trading partners, inflation is not likely to be an external factor on the Canadian market.
The U.S. housing market appears to be rebounding nicely due to low mortgage rates and a declining inventory of foreclosed properties. At the height of the crash, there was a 12-month inventory of new homes available. That number has fallen to 4.5 months, essentially where it was at the turn of the century.
New home starts in the United States are at their highest in four years and likely to double by 2015. As American demand continues to grow, an impact may be felt in the Canadian market through higher cost of material goods.
Next week, we will look more closely at the Canadian housing market and how all these factors may influence it.
Mike Moore is president of the Manitoba Home Builders Association.