Driven by continuing low interest rates on construction loans and new home mortgages, residential construction is one of the factors working in favour of continuing (albeit slower) economic growth. “Looking forward,” reports industry trade sheet, the Daily Construction News (DCN), “although the rate of economic growth in Canada appears to have peaked, a number of indicators suggest that the economy will continue to expand, albeit at a more subdued pace, through the remainder of this year and into 2011.”
Taking a hawkish view on the timing of further Bank of Canada interest rate hikes, residential construction the DCN forecasts that “residential construction will probably expand at a more measured pace [to year’s end and into 2011] due to dissipating pent-up demand, combined with rising interest rates.”
With what is, perhaps, the majority view of economic analysts expecting a pause in further rate hikes well into 2011 (some predicting a halt in further hakes until the third quarter of 2011, as reported here), continuing low rates for new construction loans and mortgages will likely translate into an even more robust new housing market than that envisioned by DNC.
In a previous analysis, the Daily Construction News observed that the new housing price index (NHPI) had recovered “to just about where it was prior to the recession.” This recovery in the NHPI, the DCN suggests, may be indicative of a “soft landing” to any correction in the overall housing market. “The fact that new home prices are remaining firm, so far,” they conclude, “is an early indication that the deterioration may not be as severe as perhaps feared.”
