Higher lumber costs among 2021 challenges
December 4, 2020
In a new housing forecast, Altus Group says home builders face slumping immigration and higher material prices. But its chief economist, Peter Norman, expects starts to be “solid in 2020 and hold steady in 2021.”
In the third quarter of 2020, total Canadian housing starts came in at 237,300 units, seasonally adjusted, up 22.2 per cent from the previous quarter, the forecast noted. Markedly higher starts in most provinces more than offset lower starts in Manitoba and Prince Edward Island.
“The number of existing home sales rose sharply, up 93 per cent in the 3rd quarter of 2020, while home prices increased by 4 per cent, compared to a year earlier,” Altus Group’s report stated.
Despite low interest rates, which the Bank of Canada projects will remain at historic lows until 2023, steady appreciation in house prices is expected to put a dent in affordability and dampen housing demand next year, Norman cautioned.
“Additionally, jobs and incomes are not expected to grow as firmly as previously expected in 2021, while the government’s massive income support programs are likely to be wound down.”
Builders saw a sharp rise in prices for four major building materials in third-quarter 2020, led by skyrocketing lumber prices. Lumber price increases have since eased, however, and precast concrete prices have fallen for six consecutive quarters.
Immigration to Canada has plunged during the pandemic, going negative in some provinces and falling from 234,000 in 2019 to a projected 80,000 this year, according to Statistics Canada. Norman said this drop in immigration will have a negative impact on housing sales.
Here is Altus Group’s regional outlook for 2021:
Ontario: Housing starts are on track to close out 2020 significantly higher than last year, due to a resurgence in single-family and apartment starts since the provincial reopening. Low mortgage rates and a resilient homebuyers job market will spur housing demand next year.
Quebec: Despite a COVID recession and low immigration, starts came in stronger than pre-pandemic expectations in every quarter. Housing starts are on track to reach a 10-year high in 2020 but weak new condominium apartment sales point to lower starts in 2021.
British Columbia: Though dampened by the COVID recession, starts are expected to be solid in 2020 and hold steady in 2021. Despite remaining strong since restrictions were lifted, lower buying intentions and weakness in apartment sales are likely to stymie momentum in house sales and starts going into 2021.
Alberta: Low oil prices and the COVID second wave will suppress Alberta housing demand and starts well into 2021.
Saskatchewan: The 2020 rally in housing is expected to continue in 2021. Homebuying intentions remain high as negative economic effects from COVID continue to be mild.
Manitoba: Manitoba’s current COVID lockdown during the second wave will stall its economic recovery but the drag on housing demand and starts in 2020 is not expected to persist in 2021.
Atlantic Canada: Weaker immigration and energy sector woes in Newfoundland are likely to continue to negatively affect housing starts in 2021.