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‘Scary’ rate environment fuelling housing boom, homebuilder warns

Canada’s booming housing market has helped solidify Mattamy Homes’ position as the country’s largest homebuilder, but the red-hot market and Canada’s “scary” interest-rate environment are raising some red flags for the homebuilder.

How consumers will ultimately react to rising interest rates is a cause for concern, Brad Carr, Canadian President of Mattamy Homes, tells BNN.

“The scary part is the home building industry has really responded to a consumer who now thinks of housing as how much does it cost per month, not how much does it cost [in total],” he says. “When you think about where interest rates are likely to go, we could suffer some real pressures as people struggle to afford these houses as interest rates rise.”

While low rates are making it easier to buy a home, the impact on the Canadian dollar is helping to push up construction costs, says Carr. The cost of lumber, fixtures and other imported manufactured elements in the homes have all risen as the loonie has swooned. Those increased costs have been only partially offset by falling energy prices, he says.

The hot market – particularly in the Greater Toronto Area – is helping to saturate the real estate development sector, according to Carr.

“Many, many developers play in the GTA. They do it well and they believe this is their home market so they continue to reinvest aggressively here in the GTA.”

Mattamy is hoping to protect itself from any potential slowdown in the Toronto real estate market by expanding across Canada and into the United States. Last year, Mattamy built about 1,500 homes in nine U.S. markets, including Florida and Arizona.

The company is also expanding into Alberta – a market, Carr says will ultimately be one of the strongest in Canada. Alberta’s real estate sector has been hit hard by the collapse in energy prices, but that is helping Mattamy gain a foothold in the province.

“Sometimes a downturn - for a company like ours that is looking to start up, grow and invest - is just the place you want to be,” he says.

Meanwhile, new home prices in Canada rose by the most in nearly a year in June, driven by increases in Toronto, while prices in oil-hit Calgary climbed for the first time this year, data from Statistics Canada showed on Thursday.

The new housing price index rose by 0.3 per cent, the biggest monthly increase since August 2014 and topping economists’ forecasts for a gain of 0.1 per cent. Compared with the year before, prices were up 1.3 per cent.

The Toronto and Oshawa area was the biggest contributor, rising 0.6 per cent on the month for the largest gain since April of last year. Builders cited market conditions, higher material and labor costs, as well as higher land development costs.

Calgary, which has been hurt by the drop in oil prices, rose 0.1 per cent as higher land prices offset builders having to reduce their prices to encourage buyers into the market.

The new housing price index excludes apartments and condominiums, which accounts for one-third of new housing.

Canada’s financial authorities have spoken of a three-speed housing situation, with Toronto and Vancouver sizzling, the provinces of Alberta and Saskatchewan suffering due to low oil prices, and the rest of Canada relatively stagnant.

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