As chief executive officer of the Canadian Home Builders’ Association, Kevin Lee has an inside view on what’s happening in the country’s new home industry. And despite rising optimism among his members for the year ahead, the industry is facing some major challenges into the new year. He sat down to break down the opportunities and challenges in store for builders in 2022.
How are builders feeling going into 2022?
I think there’s a fair bit of optimism, but also some caution. Our housing market index is based on what’s going on in sales offices, because sales traffic is such a great leading indicator. And that’s been going well. But obviously there’s a lot of uncertainty with things such as the supply chain and lumber prices. Everyone’s going to have a hard time keeping things on schedule.
So new builds will be delivered late?
The average close is likely delayed by two and a half months. I don’t think the world has ever seen anything like this, and [delivering homes] is very much a function of the supply chain because so much of what we bring in is not local. It’s coming from all over the world. And that’s part of the frustration – nobody can really do anything about this. One of the other bottlenecks is labour – some builders are holding back on presales and some of their developments because of the uncertainty.
Those are big changes.
Some members are getting away from pre-sales altogether and building homes on spec to lock in their cost and closing certainty. They don’t sell it until it’s done, to avoid the frustration when you can’t get garage doors or patio doors.
And those costs get passed along to the buyer?
Construction costs continue to climb. An average 2400 square foot house costs $68,000 more just because of lumber and materials than it did pre-recession. And that’s just construction costs, not the costs that come with delays.
So how does that all play out in 2022?
It’s going to be really interesting. There’s so much uncertainty. We know interest rates will go up, so it’ll be interesting to see what effect that has on the market. But it’ll be a slow climb and rates have been so low. We are most concerned about first-time buyers who are most affected by rates and mortgage rules. Low rates have been helpful for them to get in.
There are rumblings about big price drops as rates rise. Do you believe we could see 20 per cent dips?
The “sky is falling” predictions in the Canadian housing market have been around for a couple of decades and pretty much never come true. What often gets said is not based on fundamentals, and this situation is based on the most basic fundamental of supply and demand. There’s not enough supply. Millennials are looking to move up. Add the pandemic and working from home. It’s hard to imagine we’ll see any drop in prices – what’s probably more likely is a more moderate growth which is better for everybody.
What trend are you expecting to see gain momentum this year?
The resurgence of the single-family home. It was on the decline for years, but people are able to live further from the downtown core.
