This is a post from Alex Carrick's blog that covers the Canadian construction industry.

Since 1985, Mr. Carrick has held the position of Canadian Chief Economist with Reed Construction Data's CanaData, the leading supplier of statistics and forecasting information for the Canadian construction industry.

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Construction Industry Forecasts

Notes from Alex Carrick - Feb 11, 2010

Alex Carrick
Government moves in the housing sector and the in-your-face green movement

There are some interesting aspects to the recent pick-up in housing starts in Canada. It is largely due to the strength in resale markets, which in turn is tied to record-low mortgage rates. The Bank of Canada is expected to begin raising interest rates by this summer at the latest.

That may serve to slow down housing starts somewhat. The introduction of the blended or harmonized sales tax in Ontario and B.C. is another factor that may be hurrying up starts at the moment in anticipation of higher costs for home purchasers later this year.

At the same time, there are other governmental actions that may have significant impacts on the housing market. What is particularly noteworthy is that they will act in opposite directions.

Tighter rules for mortgage applications

In the first of these, Ottawa is said to be considering a move that would require banks to apply tougher criteria when approving mortgage applications. The principal change would be for banks to assess to what degree potential borrowers can withstand hikes in interest rates.

This is seen as a means to combat the potential problem of homeowners taking on current variable rate mortgages at exceptionally low rate levels, leaving them vulnerable to payment defaults once credit costs begin to rise again. This is a common problem in all cycles.

A change in rules might require variable-rate applications to be assessed on a 100 or 200 basis point increase in rates. This proposal contains the further assumption that such homeowners would lock in rates once they begin to move upwards. It at least gives them a fighting chance.

Ottawa is also apparently giving consideration to an increase in the minimum down payment required for a new home to a level above the current 5% and/or lowering the maximum length of the amortization period below the current 35 years. These would decelerate new home sales.

The Competition Bureau and MLS listings

The former might act to depress residential real estate. The recent actions of Ottawa’s competition watchdog might do the opposite. The Canadian Real Estate Association’s tight control of the Multiple Listing Service is going before a Tribunal of the Competition Bureau.

It is the Competition Bureau’s assertion that the MLS service is limiting competition in the home-selling business. In Canada, 90% of existing homes are sold through the MLS database. MLS rules require the use of a real estate agent throughout the buying and selling process.

The current changes being proposed by the Bureau, in terms of unbundling some of the services provided by real estate agents (and thereby justifying full commissions), will still leave the industry far short of what is offered in the U.S. American home-selling Internet sites have add-ons that include school ratings, crime statistics and the prices of other for-sale homes in the area.

Existing home sales are a leading indicator for new home construction. Homeowners often sell their existing properties to move to bigger, better and/or newer accommodations. Another reason for resale strength lately has been the shift from the suburbs to condos in downtown cores.

Opportunities for workers and manufacturers

Due to the bounce-back in housing starts in the latest several months, a valid question concerns where the opportunities for workers and manufacturers lie. There are several key areas.

Many smaller contractors were able to tide themselves over in the early part of last year due to the home renovation tax credit. Now that the tax credit is about to expire, it is good that opportunities for employment have re-appeared in the new homebuilding sector.

The design services and marketing plans of building product manufacturers should factor in two major trends in the marketplace – the aging population and the movement to a cleaner environment. The latter is even better when it can also save money for homeowners.

With respect to design features for an older demographic, that means easier access to closets and cupboards, single-story offerings of laundry facilities, side-entry bathtubs and special safety features in bathrooms and whatever else can be dreamed up to make life more comfortable.

In previous times of economic hardship, the movement to energy efficiency has been derailed by other more immediate concerns. Will environment efforts become side-tracked this time as well?

No. In the vernacular, green has become “in your face”. Through promotional messages and new legislation (i.e., in such areas as waste recycling), everyone has become too conscious of the need to conserve scarce resources and of the health and legacy consequences of failing to do so.

Leed design, green standards and a heightened sense of responsibility for the environment are here to stay.

Alex Carrick

Find Canadian construction-related economic articles in Canadian Construction Market News and in the Economic Outlook section of Daily Commercial News. Mr. Carrick also has a lifestyle blog that can be reached by clicking here.


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