With new home starts down, inventories are stabilizing
New home construction in the Calgary region continues to be negatively affected by a struggling economy that has slowed down the pace of activity in the past two years – and more of the same is expected this year.
Canada Mortgage and Housing Corp’s Richard Cho, principal market analyst for Calgary, says the pace of activity was starting to stabilize in the single-detached market as 2016 progressed.
‘‘But on the multi-family side we saw inventory levels steadily rising throughout the year and they’re pretty elevated levels for Calgary and they’ve had an impact on the number of new projects breaking ground last year,’’ said Cho.
According to the CMHC, total housing starts in the Calgary census metropolitan area fell by 29.1 per cent in 2016. That is a drop of 9,245 units compared with 2015. The single-detached market was down by 15.7 per cent to 3,489 starts while the multi-family sector fell by 35.3 per cent to 5,756.
New home construction in January followed the same pattern as the year before with total starts dropping by 24.9 per cent to 426 units for the month compared with January 2016. That consisted of a 1.8 per cent decline in the single-detached market to 221 units and a plunge of 40.1 per cent in the multi-family market to 205 units.
In its forecast last fall, the CMHC said single-detached starts are expected to range between 3,400 and 3,600 this year and between 3,900 and 4,100 in 2018. The forecast for multi-family starts is between 5,100 and 5,500 in 2017 and between 5,600 and 6,000 in 2018.
While the pace of construction activity slowed, the number of completed and unabsorbed units has increased. At the end of December, there were 2,278 vacant new homes, up from 1,086 in December 2015. The increase was primarily a result of the multi-family market which saw a rise in vacant dwellings from 728 in December 2015 to 1,896 in December 2016. The single-detached sector went up from 358 to 382.
In the housing market we are starting to see things rebound. When you look at the pace of single-detached construction we are seeing activity stabilize in Calgary. Demand for housing has been gradually improving. We are seeing some improvements in the economy.
‘‘In the housing market we are starting to see things rebound. When you look at the pace of single-detached construction we are seeing activity stabilize in Calgary. Demand for housing has been gradually improving. We are seeing some improvements in the economy,’’ said Cho.
Multi-family construction, however, will continue to face the challenge of a high inventory in the market.
Ann-Marie Lurie, CREB® chief economist, says new home construction has an impact on the resale housing market, particularly in the area of supply.
‘‘New home product under construction and in inventory, impacts what happens in the resale market,’’ said Lurie, adding that effect was particularly evident in the condo market.
‘‘If there is a lot more supply coming on, your resale market is competing with that.’’
Overall, the demand remains relatively weak compared with historical averages but what is adjusting is supply. New home starts have been contracting for the past two years, which is limiting the upward pressure on overall housing supply. New listings in the resale sector have been falling, with the exception of the apartment category.
‘‘Supply is adjusting to lower levels of demand which should help support that stabilization that we expect, but apartment is different,” said Lurie.
“Listings are still going up. Inventories are still rising. And part of that has to do with the new home competition. There’s just so much apartnemt product that is still in inventory.”