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Fenestration market report reveals state of Canadian industry

June 20, 2024  By Patrick Flannery

Brad Farnsworth of the Farnsworth Group presented top-line findings of his market research into the Canadian window and door industry at Fenestration Canada’s Spring Conference in Kananaskis, Alta., at the end of May. FenCan commissioned the report earlier this year and issued an invitation to anyone in the industry to participate in its survey. Farnsworth has prepared studies of this kind for the American Window and Door Manufacturers Association for many years.

Farnsworth started with a look at the housing market. He likes the metric of household formation as a forward-looking measure of demand for housing. Over the last five years, household formation in Canada has been fairly flat at 1.1 percent per year, translating into around 200,000 households per year. However this still outstrips the number of dwellings being built. Farnsworth put the backlog of households needing housing at around 1.5 million, which he called good news for the industry down the road but not good news for the households now, as they can’t find housing, never mind affordable housing. Still, actual home ownership is around 68 percent, down only slightly from its 69- to 70-percent peak. But Farnsworth reminded the group that two percent of the Canadian population is still a lot of people who don’t own houses who might have before.

Farnsworth then compared the labour participation rate to the demand for housing. He said the participation rate is around 65 percent, leaving a significant gap between the number of people in the workforce and the number of people owning homes. That indicates a pressured population. He noted that Canadian unemployment numbers are not great but not terrible at 5.5 percent. “Unemployment is critical,” Farnsworth reported. “That’s the foundation of people in terms of being able to do something and have money to spend to do something.”

Then Farnsworth added wealth numbers, noting household incomes had grown slowly in static dollars over the last seven years, with inflation eroding purchasing power “very very quickly.” Then, interest rates. “No surprise to anybody here,” Farnsworth said, “This is killing the housing market, absolutely killing it.” He noted that the Canadian banks’ unwillingness to fix mortgage rates for more than around five years (versus 15 to 30 years in the U.S.) makes our market much more sensitive to interest rate changes. The increase to seven percent average mortgage rates from three constituted a major shock to our system where many younger people had never seen rates that high. However Farnsworth believes the effects of the initial rate hikes are beginning to wear off as people’s need for housing overtakes their ability to delay their purchases and people simply get used to the higher rate numbers. Yet the impact on affordability is real, with 36 percent of household incomes going to housing costs in 2017, and 49 percent going to housing costs now. Farnsworth noted growth in housing prices is starting to slow, but the damage was done by an 11 percent average increase coming out of the pandemic. He noted a CIBC report that said we need a five-fold increase in housing starts – a million homes per year  – to start to bring prices down through market forces.

All of this, in Farnsworth’s view, adds up to housing prices neither dropping nor rising sharply over the medium term. This should allow for a gradual increase in market activity as people become unable to put off sales and renovations and interest rates come down and inflation recedes.

Next, Farnsworth looked at consumer confidence. He noted it had dropped to a low of 33 percent in the early days of COVID and has since rebounded to around 48 percent, still short of what he would consider a healthy level of 50 percent. “Back in the 55 range we start to see the consumer loosening up a bit,” Farnsworth explained. He predicted a “nervous” second half of 2024 for consumers who had spent all their excess cash during COVID, but noting the improving trend in confidence numbers.

Business confidence is depressed below its historical average but not by a lot. Home sales are well below 10-year averages, with positive trends.

In the manufacturer survey, 24 percent of respondents expected increases to input prices. Numbers expecting supply chain delays dropped from 66 percent in 2023 to 48 percent. Contractor backlogs have reduced from six months to three months. The Canadian industry shipped 4.3 million windows in 2023 with small declines expected in 2024 and increases beginning again in 2025.

Fenestration Canada members can download the full report for free through the member’s portal. Non-members can obtain it for a fee.

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