VANCOUVER (NEWS 1130) — The number of new homes being built in Canada surged last month, and Vancouver was a big factor despite having the lowest June housing sales in 19 years.
The latest numbers coming from a BMO report released on Tuesday show that housing starts last month were the highest in B.C. when comparing with other provinces.
Bank of Montreal senior economist Robert Kavcic says the surge is driven by jobs, demographics and interest rates, but he has some questions.
“How much of this new supply was investor-bought, since it will be coming to completion in an environment where prices are slipping,” he says.
Kavic says most of the units don’t have rents that are high enough to support higher cash flow, so he wonders who will hold on to them “in an environment where prices are no longer rising as an offset?”
More: Saretsky also notes that much as developers continue to build, some are shelving projects. “They’re kind of looking at it and saying, well, I need to sell x amount of units, usually 60, 65%. In a 9 month period, it’s going to be challenging, esp. at certain price levels.”
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Vancouver realtor Steve Saretsky is pointing to another possibility with a change in the market.
“Developers, they’re trying to get out the last bit of the market, trying to get out ahead of it. Where, basically, it makes more sense to push a project through if you can and try to get it started,” he says. “The cycle is obviously winding down. The last thing you want to do is sit on a piece of land for three or four years while you wait for the market to come back.”
Saretsky says it’s not as simple as just pausing projects until they feel confident enough the market is in a good place.
“For a developer, it’s challenging — that’s why we’re seeing a lot more projects actually getting shelved as well,” he says. “They are looking at it and saying, I need to sell X amount of units, usually 60 to 65 per cent. In a nine-month period, it’s going to be challenging, especially at certain price levels.”
Acknowledging that these numbers are a bit of an oddity, he says it will be interesting to see how all the market players respond.
“It’s not really a trend from a feet-on-the-ground perspective. We’re definitely noticing that developers are more hesitant, a little bit more cautious,” he says. “So I think, with the housing starts, I wouldn’t look too much into it.”
The last time B.C. saw an uptick in its housing starts was in 1990.