Canada's largest builder of new homes is planning a major U.S. expansion, as it bets that house prices have topped out in its main market of Ontario – and have bottomed out south of the border.
"I think Ontario's had a good run in terms of house prices and I think we're at a point in time where we've peaked in pricing," Brian Johnston, the chief operating officer of Mattamy Homes, said during an interview at the company's Oakville, Ont. headquarters. "We've had a good run as an industry and now things are flattening out."
The shift in Mattamy's strategy highlights the stark reversal in the fortunes of the housing markets on either side of the border. Not so long ago articles were rampant about banks bulldozing homes in the U.S. to clear out the glut that built as prices fell by more than 30 per cent. The U.S. mortgage and housing crisis helped to trigger a global recession, but Canada's residential real estate market was the envy of much of the world during that downturn.
But house sales in Canada dove sharply in the second half of last year, effectively erasing the gains that had occurred earlier in 2012, and growth in prices has been slowing. In much of the U.S., on the other hand, sales are recovering and price growth is accelerating.
Mattamy is still looking to expand in Alberta, where the housing market is on a different trajectory than the rest of the country, but the company's big push will be into the U.S., where it believes opportunities are ripe in a market poised for a revival.
Mr. Johnston, who joined Mattamy in June and was previously the president of Monarch Corp., believes that Mattamy is too concentrated on the Greater Toronto Area.
Sales in Canada's most populous city, and the rest of Canada except for Alberta, plunged late last year after the federal government took steps mid-year to make mortgages more difficult to obtain. So far house prices in Toronto have continued to climb, although at a slower pace, with the average price of a detached home topping $600,000.
"I think we all have to agree that's a high price," said Mr. Johnston.
Mattamy is still developing communities on the roughly 10-year supply of land that it has amassed in and around Toronto, and taking a look at the parcels of land that come up for sale in the region. But the quest for growth is pushing it to areas like Calgary and Edmonton. And Mr. Johnston says now is really the time to expand in a big way in the U.S.
The company completed a $500-million debt offering in November, raising money from Canadian and American investors to fund further growth. A number of U.S. home builders have been issuing debt, a prospect that has become easier as investors have been seeking yield and many are eager to invest in the housing market, which they are betting has bottomed.
"There's an absolute view in the United States that the U.S. housing market is on the ascendency," Mr. Johnston said.
Mattamy entered the U.S. before the housing crisis, and has a small presence now in Minneapolis, Minn.; Charlotte, N.C.; Phoenix, Ariz.; and Jacksonville and Orlando, Fla. But its ambitions are much larger.
"Up to now the whole idea in the U.S. has been just keep a pulse, keep the body alive but don't blow your brains out," Mr. Johnston said. "We've been losing money in the U.S. like every other builder, and now we're seeing things changing, we're starting to make money, so we're going to start spending money," he said.
Recent purchases include hundreds of lots in two communities in Orlando, and the company will also spend more on hiring and marketing.
"We need to hire big time," Mr. Johnston said. "We're transitioning from a bare bones, keep-it-going type operation to wanting to be a major player in the U.S. markets."