First a warning: Analyzing 2021 new home sales takes time and effort. It requires examining and understanding multiple data sources that cover different time periods. Therefore, quickly written media reports focusing on one or two measures are incomplete and overly simplistic. For the current period of abnormally slowing sales, more depth is required.
What is really happening
Note: Judging reality means focusing on actual, non-seasonally-adjusted results. The seasonal effects can then be overlaid for a fulsome analysis.
First, new home sales have been lower than expectedover the past three months. Importantly, this slowing is taking place in the strong summer selling period. Next comes the naturally slower fall/winter months. (After hitting peak sales of 83K in March, the usual high point of each year, the April to July sales came in at 74K, 64K, 63K and 63K.) Remember: new home sales are counted upon the signing of the contract. Many sales are recorded prior to the home’s completion.
Second, new homes-for-sale inventory has increased to a historically typical level in terms of months of sales (about 6). The July data are 368K new homes for sale and 63K new homes sold, meaning an inventory of 5.8 months (at the July sales rate). The sharp increase in inventory since March (up 21% from 305K) shows homebuilders were anticipating higher sales. Additionally, the increase shows that the number of construction workers (now at a historically high level of 899K) and the supply of lumber (now selling at low prices) were ample, not restrictive.
Third, median new home price increases have been trailing that of existing homes, indicating that “too-high” pricing is likely not the cause of slowing sales
Fourth, homebuilder stock prices and low current price/earnings ratios indicate investment analysts are adjusting the “consumer cyclical” company outlooks down. Remember: Cyclical stocks look cheap at their peaks and expensive at their troughs.
Fifth, the three components (*) of the NAHB/Wells Fargo Housing Market Index(measuring homebuilder attitudes) continue to show a good level of optimism, but have declined steadily since November 2020 (the peak of the rise caused by the dramatic new home sales jump earlier in the year). Then, in the last report, the two current components showed a larger drop – still at good levels, but indicative of a downtrend.
(*) The three components are present sales conditions, anticipated (next six months) sales conditions and prospective buyer traffic. The declines for the three indexes from last November to August are 96 to 81, 89 to 81, and 77 to 60 (traffic always has lower numbers than the other two). While anticipated held steady at 81, both current items, present and traffic, dropped 5 points from July to August.
Here’s where the media reports go wrong
They use seasonally-adjusted data that exaggerates or masks the non-seasonal shifts
They use seasonally-adjusted outlooks that hide the approaching large, winter declines in new home sales
They compare new to existing home sales data by report date, but the data time periods are dramatically different
They overstate the importance of low interest rates – history clearly shows a lack of correlation
They continue to use old, abnormal or unsupported effects to support their reasoning (e.g., high lumber costs and difficulty in finding workers)
They refer to homebuilder attitudes using a cherry-picked quote or two instead of examining the survey data covering all homebuilders
Finally, they now attribute the recent slowing sales to a strategy somehow being carried out collectively by the diverse group of competing homebuilders: Holding back the supply of homes (and sales) to capture higher future prices. Conspiracy? Collusion? No – nonsensical, particularly in the face of the coming winter decline in sales.
For that last item, The Wall Street Journal provides two articles that, first, promote this idea, then disprove it. On August 17, “Home Builders Are Restricting Sales, Pushing Up New Home Prices – Many cannot increase construction quickly enough to meet booming demand and are turning away business.” One week later, on August 25, “Home Builders Restock Their Shelves,” saying, “Home builders sold some [very few] more new houses in the U.S. last month than they did in June. But the bigger news might be that builders have more houses to sell.” Using seasonally-adjusted numbers, the article states a 6.2 month inventory. The conclusion to this article is the key: “Home builders have built it [the inventory]. Now it is a matter of waiting to see if buyers come.”
Reminder: That inventory is an absolute, non-adjusted number. The coming sales reports in the WSJ and elsewhere will be inflated by seasonal adjusting and annualizing (multiplying by 12) through February 2022, but the inventory will only decline by the net number of actual, unadjusted monthly sales less the number of newly constructed homes for sale.
The bottom line: Weakening new home sales imply softening economic growth
Homebuilding (AKA residential construction) is not simply a small, standalone industry. It is a meaningful participant in the U.S. economy’s growth. Beyond its actual money impact is the confirmation it provides for the health of the economy, as well as the well-being and confidence of consumers. Therefore, weakening new home sales growth can be a sign of problems elsewhere.
OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.
Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.
Business, building and support services saw the largest gain in employment.
Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.
Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.
Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.
Friday’s report also shed some light on the financial health of households.
According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.
That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.
People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.
That compares with just under a quarter of those living in an owned home by a household member.
Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.
That compares with about three in 10 more established immigrants and one in four of people born in Canada.
This report by The Canadian Press was first published Nov. 8, 2024.
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.
