Canadian home starts slide in June
July 9, 2010
Tony Wong
BUSINESS REPORTER
James Bazely figures his business has been cut by as much as half since the implementation of a harmonized sales tax on new homes in Ontario.
The president of Gregor Homes Ltd., a mid sized custom builder based in Barrie, says provincial developers have already been adversely impacted by the tax that was introduced this month.
“Buyers were rushing to get their homes before the tax, and then suddenly you have this drop,” said Bazely, who is also the president of the Ontario Home Builders’ Association.
Bazely says it is still too early to determine how much of an impact the HST has had on new construction and how much is due to a slower economy. Sales started to slow before the implementation of the tax since consumers were trying to take possession of properties before the July 1 deadline.
“Certainly though, you have consumers coming into the showrooms and they are asking about the HST, that is a real concern. And even though we got some great activity in the spring, the economy is not as strong as we might have hoped.”
The new tax, which combines the provincial sales tax and the goods and services tax has impacted homes valued over $400,000.
It would add, for example, $6,000 on a $500,000 home, while a $1 million dollar home gets hit with $36,000 in extra taxes.
The HST meanwhile, is not charged on the sales price of existing homes.
“Demand on the new home side of the market is likely to soften materially in the second half of the year as the HST has now taken effect,” said Robert Kavic, an economist with BMO Capital Markets.
According to the Canada Mortgage and Housing Corporation in a report released Friday, Ontario building starts were down by 17.4 per cent in June over May on a seasonally adjusted and annualized basis. The province is responsible for the lion’s share of starts, which helped to bring down the national average.
Across Canada, starts were down by 3.1 per cent from a month earlier.
“Canadian residential construction activity has likely peaked for the time being and should soften further given the weakening demand and lower rate of household formation,” said Kavic.
One reason is affordability, as single detached starts for low rise housing which builders such as Bazely specialize in, starts to wane.
“While detached housing construction remained resilient in June, the sector has started to cool in the second quarter largely due to rising mortgage carrying costs,” said Ted Tsiakopoulos, CMHC’s regional economist. “The multi-family home sector looks relatively stronger moving forward due to a high backlog of condo apartment sales that have yet to commence construction.”
One bright spot is that employment numbers released Friday show that Canada added an extra 93, 200 jobs in June, as the unemployment rate fell to the lowest level in 18 months.
On the heels of the housing starts figures, the Bank of Montreal also announced that they were going to lower their five year closed mortgage rate to a very competitive 3.99 per cent, down by .16 percentage point.
Bazely says he is hoping that the market is just taking a pause during the summer.
“I think affordability is still extremely good, so hopefully we will get back on track in the fall,” he said.