From the Greater Vancouver Home Builder’s Association
RE: Economic Outlook & Federal Budget
ECONOMIC OUTLOOK
CHBA hosted a National Economic Research Committee meeting on Thursday, March 4, outlining the economic outlook for the residential construction industry in 2010/2011. GVHBA’s Immediate Past President Ross Gurney (TD Financial Group), CEO Peter Simpson, and myself attended the meeting. Following is a summary of the key points.
Economist Dr. Peter Andersen’s theme was “On the Road to Recovery”:
National housing starts are to reach 190,000 in 2010, and 170,000 to 180,000 in 2011.
Sustainable recovery is happening; he is looking ahead with confidence. There is multi-year economic expansion ahead. Fears of a “double-dip” recession are on the back-burner. The recession officially ended August 2009. 2010 is an early-recovery period, and will be a transition year. There will be true, solid recovery in 2011.
Risks are Canadian Finance Minister Jim Flaherty’s administrative controls on mortgage financing. 30 per cent of condos sold are for rental. What will Flaherty do if his restriction on investor mortgages affects the rental market?
Hiring plans are optimistic in the business sector.
Don’t buy story that there is a housing bubble.
Canada has a healthy banking system. Banks are easing their credit conditions.
BC is looking great. The Gateway to Asia will be a major economic driver for the province going forward.
Single-family housing is rebounding faster than high-rise condos.
Anticipates interest rates will remain the same in 2010, and will rise in 2011 (50 point increases, possible 75 point increase in 2012)
Concerns about HST will increase sales prior to its implementation on July 1, 2010. Expect to see the true impact of HST on new home sales in 2011.
Municipal approvals are at a snail’s pace and it will take a while for them to catch up.
People will continue to renovate despite the end of the Home Renovation Tax Rebate. This program kick-started the process for many homeowners.
There is progressive improvement in the US construction industry – it should be back to normal in 2012.
Peter Simpson pointed out there is a huge inventory of foreclosed homes in the US not yet on the resale market. These homes are being held by lending institutions waiting for an opportune time to release them into the market. Once released, this inventory will compete with new homes. How will this affect the US new housing market? Dr. Andersen responded that one in every five Americans is more than 20 percent under-water in their mortgage. People are making strategic decisions to walk away from their home and rent. Foreclosure crisis won’t end until 2011. Mortgage payments feed asset-backed securities, which is why US financial market is still slow to recover.
Peter Norman (Altus Group):
National housing starts estimated at 160,000 for 2010, and 170,000 to 180,000 in 2011.
Concerned about employment growth – doesn’t expect normalization until next year or so.
Market rates moving up sooner than later.
Mortgage rates to increase at least 1 percent sometime this year and another 0.75 percent in 2011.
Renovation spending was $55 billion in 2009 nationally (includes estimates for underground). This is a $2 billion increase from 2008.
Expects HST will negatively impact the renovation industry.
Bob Dugan (Canada Mortgage and Housing Corporation):
National housing starts will be 171,250 in 2010 and 175,150 in 2011.
GDP to be 2.65 percent in 2010, rising to 3.2 percent in 2011.
Unemployment rates will be 8.4 percent in 2010, decreasing to 8.1 percent in 2011.
Employment growth will be 0.9 percent in 2010, doubling to 1.8 percent in 2011.
Mortgage rates will rise, but will still remain near 50 year lows.
Expect interest rates to increase 40 basis points in 2010, 70 points in 2011.
Home equity is increasing. Those who bought a home in January 2004 achieved 48 percent equity by December 2009. On average, no Canadians ended up “under-water” in their mortgages from 2004. 42 percent of Canadians are mortgage free.
It is currently a sellers market.
Chris Jokel (Canadian Real Estate Association):
Consumer confidence is rebounding. They received the best response to their January 2010 consumer confidence survey since April 2008.
The question “Is now a good time to buy?” trended downward somewhat due to consumer uncertainty about the effects of HST, new mortgage rules, and impending interest rate increases.
Single-detached housing prices are stabilizing. Expects slight increase nationally in 2010, slight decrease in 2011.
FEDERAL BUDGET
CHBA advised Finance Minister Jim Flaherty’s budget is “the right approach to complete Canada’s economic recovery”. CHBA President Gary Friend (South Ridge Developments) expressed the following points:
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.
Expressed regret that the budget missed the opportunity to implement long overdue 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”.
Disappointed that the budget did not announce a permanent replacement for the hugely-popular Home Renovation Tax Credit.
Welcomed the federal government’s renewed commitment to municipal infrastructure investments.
Written by GVHBA Director of Government Relations Amy Spencer-Chubey
March 05, 2010