Construction Industry Forecasts

The housing markets in Canada and the U.S. continue to tell complex stories. Canada’s housing starts have been gradually creeping up since their April low. For 2009 as a whole, they are expected to be 140,000 units, rising to 160,000 in 2010, then 180,000 in 2011. The stock of unsold single-family homes in Canada is adjusting downward in an appropriate fashion, but the unsold stock of multiples is still climbing. In the U.S., the monthly annualized starts number is just under 600,000 units. Similar to Canada, the improvement next year will be only gradual, to 700,000 units, with a further modest gain in 2011 to 900,000.

In September, the stock of unsold new single-family homes in the U.S. was -3.8% versus August.  On a happier note, the unsold stock was -36.5% on a year-over-year basis. Unfortunately, the monthly sales figure also dropped after five straight month-to-month increases. The net effect was to leave the number-of-months inventory (i.e., unsold homes divided by the monthly sales rate) the same in September as in August, at 7.5. While 7.5 is a vast improvement versus the peak level of 12.4 in January, normal equilibrium usually lies between 4.0 and 4.5.

The U.S. housing market is far from being out of the woods yet. Various state and federal government moratoriums on mortgage foreclosures are about to expire. The $8,000 tax credit to encourage first-time homebuyers to enter the market runs out at the end of November. The mortgage applications index has fallen to its lowest level in two months. And the unemployment rate is expected to keep rising through the end of this year, undermining confidence.

Working in the opposite direction for both countries are the following factors. Case-Shiller reports that U.S. home prices are firming up and the Canadian Real Estate Association is seeing better prices in Canada. U.S. existing home sales are at their highest level in more than two years. In Canada, home resales have staged a stunning recovery since the first quarter of this year. Mortgage rates are near historical lows on both sides of the border and, finally, GDP change is poised to turn positive.

Alex Carrick