New builds in decline: How investors are affected

As more Canadian investors continue to purchase new builds in droves, the window of opportunity may soon be closing, warns a new report from the Canadian Association of Accredited Mortgage Professionals (CAAMP).

By the end of 2014, the rate of housing starts is expected to fall to 150,000 units. CAAMP attributes this drop to recent moves by the federal government to slow housing activity.  

In April, the seasonally-adjusted rate had fallen to about 175,000, a 15 per cent decrease from the 2011/12 average. The report also warns that this slowdown in construction may cause a further deceleration of mortgage credit growth.

“Until now, housing has played a major role in the recovery from the 2008/09 recession,” said economist Will Dunning, who composed the report. “That economic driver is disappearing as we see housing-related jobs dry up and consumer confidence erode at a time when the national recovery is struggling to pick up steam."

CAAMP estimates that the Greater Toronto Area will see housing starts begin to slow to a rate of 2,000 units per month by late 2014. As complared to 2011 and 2012, this represents a  drop of almost 50 per cent. Vancouver will also suffer a drop in builds, falling to an average of 5,000 from 18,447. Quebec andthe Capital Region are also slated to experience declines.

But on the flip side, Calgary and Edmonton will continue to enjoy building booms. CAAMP predicts modest increases of roughly 100 housing starts per month, or 1,200 annually.

Recently posted interest rates also suggest that now is the time to buy if new construction is the investment sweet spot of a landlord. The report highlights an average interest rate for mortgages originated during 2012/2013 at 3.22 per cent. Despite that, fixed mortgages remain the most popular choice amongst investors.


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