Home Builder Canada Readers survey
newsletter
NP_lineHome Builder Magazine New Products Online
NP_line
Computers, Educational
&Technology

NP_line
Electrical & Mechanical
NP_line
Exteriors
NP_line
Finishes & Surfaces
NP_line
Kitchens & Baths
NP_line
Landscape & Design
NP_line
Speciality Products
NP_line
Structural
NP_line
Tools & Equipment
NP_line
Windows & Doors
NP_line
New Products home
NP_line



External Links: Associations & Governments . Builders & Renovators . Manufacturers & Suppliers
Home . About Us . Subscribe . Advertise . Editorial Outline . Contact Us . Current Issue . Back Issues . Jon Eakes

© Copyright 2006 Work-4 Projects Ltd.

Commodity prices put pressure on builders' costs
By Dr. Peter Andersen

The surge in commodity prices will put even more pressure on builders' costs. Copper and zinc are at new record highs. Energy prices are poised to go even higher. The Iranian nuclear issue is a threat to future oil supply. Expect another year of big increases in oil demand from China, the world's 2nd largest oil consumer. China's oil imports are running 34% higher than a year ago in volume terms.
The commodity story, in turn, ties in with the Canadian dollar. It has come roaring back to over 90 cents (U.S.) - its highest level in nearly 30 years. This is a double-edged problem for Ontario's economy. Energy costs are going higher and the associated Canadian dollar increase is making Ontario less competitive.

Globalization and Inflation
One of the big surprises of the last year has been the lack of any pass-through of energy inflation into general inflation. Globalization appears to have eliminated the inflation - unemployment rate tradeoff. It has removed national borders for capacity and is the "saving grace" that will keep inflation low and stable and give the global expansion longevity.
Global outsourcing is now moving into the services sector - 40% of U.S. workers are now at risk. Worker compensation costs in the U.S. have been trending lower, not higher, this decade. As a result, the Fed's job is easier and the risk of Fed interest rate overkill is much lower than in previous business cycles. This also applies to the Bank of Canada.

Tight Labour Market In Canada
Even though Canada fits in with the pattern of low and stable global inflation, with core CPI inflation steady at 1.7%, the inflation risk seems higher in Canada than the United States. Canada's economy is stronger than expected and capacity pressure is increasing in labour markets.
Employment increased by 51,000 in March, about double the consensus expectation. Most of the hiring was for full-time positions and in the private sector. The national unemployment rate has declined to 6.3%, its lowest level since December 1974. The average hourly wage in Alberta for workers in permanent jobs shows a 7.2% yr/yr increase. There is considerable variation across the country but the national average for wage inflation for all workers is a hefty 3.5% - something the Bank of Canada should be concerned about.

Affordability Is Better In Canada Than In The U.S.
House price increases have not been as large as in the United States. Also, the Canadian banks have not followed the U.S. in taking on low-income, sub-prime borrowers. There is no doubt that housing affordability has slipped from this time a year ago. New house prices have accelerated. However, in contrast to the U.S., affordability in Canada is nowhere close to the discomfort levels of 1990.
The resale housing market is still hot and shows no sign yet of affordability stress. This is always a good indicator for new home demand. First quarter sales were at an all-time record high, after adjusting for seasonality. Sales of existing homes in March continued to close at record levels. This is also good news for renovation demand as the stimulus to renovation from resale housing activity, which works with a lag, shows no sign of slowing down.

A Strong Year For Construction
Housing start forecasts for 2006 are being revised upwards as a result of the monthly performance through the first three months of the year. We have revised our 2006 forecast up to 220,000 units but we are still holding to our forecast of 192,000 starts in 2007. This will be a much busier year than expected for construction activity of all types. Non-residential construction, always a second half cyclical performer, is reviving. The lower office vacancy rate is signalling the onset of a new office tower construction cycle.
Housing starts averaged 248,000 at annual rates in the 1st Quarter - an increase of 17% from the same period a year earlier. This is far above the 2005 housing starts total of 225,481 units and also the annual cyclical peak of 233,431 units set in 2004. The March figures were striking - 252,300 at seasonally adjusted annual rates. The 1st Quarter surge reflected both single-detached and multiple-unit starts.
The largest yr/yr increases in 1st Quarter urban starts were in Atlantic Canada, the Prairies (including Alberta) and British Columbia. Compared to other major cities such as Vancouver (+24%), Calgary (+32%) and Ottawa (+20%), the 1st Quarter yr/yr increases in housing starts were much smaller in Toronto (+5%) and Montreal (+9%). HB

Peter Andersen, a CHBA economist, is president of Andersen Economic Research Ltd. of Toronto. The firm specializes in economic research and forecasting for the Canadian home building industry.

homeBUILDERcanada.com | Home BUILDER Magazine | Canada's #1 Information Source for Residential Home Builders and Professional Renovators

HB house ad sub
Home Builder Magazine Ask Jon Eakes
Home Builder current issue