Thursday, 9 June 2011

Construction Statistics and Economic Indicators: Signs for Future Projects

On Tuesday, June 7th the Toronto Star published an article "GTA developers seeing slowdown" by Tony Wong about the slowdown of new residential and non residential construction seen by developers in the GTA. A follow article "Home building frenzy slows down" about the subject was published on the Toronto Star website on Wednesday. In his articles Mr. Wong mentioned that "in the key Toronto market, permits fell by more than half at 55% to 945 million in April", due to a decline in the condominium driven market and institutional buildings. However, high volumes of sales in the condo market are predicted to eventually translate into housing starts. He also mentions a record sale in existing homes in April. But with the Bank of Canada’s likely raise of interest rates and the home prices’ significant outpacing of job growth and income, affordability of new homes will be weakened, according to Francis Fong, an economist at the TD Bank.

In our opinion what is the likely outcome for the large scale home renovations such as additions? Due to the record home sales in the first half of the year it is likely that less renovations were scheduled as people moved rather than added to their home. Even at spring time, usually the start of the building season we observed fewer building signs from our competitors; larger renovations seems to be done by the owners or developers.

However, higher interest rates, a soft economical environment and a larger sale of condos will likely impact the prices in the house market negatively. It is conceivable that more large scale renovations will be undertaken by home owners once this happens.

But will it? The Toronto housing market has not performed over the last few years during the recession as one would expect; lesser housing prices, fewer sales, more large scale renovations in the medium price range ($150,000 to $500,000). On the one hand owners seem to hold back, on the other they bought new houses driving the market price up. The home sales were helped by extremely low interest rates. Recently, some of the major banks lowered their mortgage rates, even though the Bank of Canada rate stayed the same. Does that mean a decline in housing sales in May?

As a construction company specializing in the medium range construction it seems that even when the normal economic indicators forecast a likely increase in potential home extension projects, there are no sure outcomes. Our approach is two-pronged, being global, but staying local:
  • a) In the World: as a strategy - it is key to raise our brand profile to become a household name among the global community. In our experience social media is a great vehicle for sharing and connecting with our clients and partners and allowing us to show the public what we are about.
  • b) At Home: as a strategy and a core believe - it is important to promote and further local social concerns and we are working with community papers to make our name more known in specific areas of Toronto, such as East York / Beaches and Etobicoke; both areas have emotional connections to us. At home also includes the community around our office, Corso Italia and The Junction / High Park / Swansea (location of one of our previous offices).
As there is no crystal ball as to the future of the Toronto housing market and home owners’ behaviour, the two-pronged approach is likely to yield a steady, sustainable growth regardless of circumstances. The key is to increase market share by being a household name, not to rely on a larger number of construction projects.

But of course if the economic reality becomes such that for homes to appreciate in value the owners rather stay put; maybe a future article by Mr. Wong will indicate this; we would like to reiterate words from Ari Berman’s posting: "In short – if you bought it, keep it. If you need more of it, expand it. And, if you plan to sell it at some time in the future, maintain it in good condition while staying as free of debt as possible. "

Martina Ernst
Wo-Built Inc. - Innovative Design and Build

links: Home building frenzy slows down
by Tony Wong | Wed Jun 08 2011

HomeView: Ontario Home Starts Decline in May
by: Canada Mortgage and Housing Corporation
Published on Jun 08, 2011 House Prices: Part of the Problem or Part of the Cure?
by Ari Berman | Mon October 06 2008

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