Softer sales and pricing were the prevailing trends in new home sales in seven key Canadian markets in 2018, according to analysis by Altus Group’s Data Solutions team.
Executive vice-president of research consulting Patricia Arsenault and vice-president of product management Matthew Boukall presented their findings in a Nov. 22 webinar.
They said Kitchener-Waterloo and Montreal were the only two markets where new home sales increased in 2018. Sales of new detached and semi-detached homes were flat or down in Vancouver, Edmonton, Calgary, Kitchener-Waterloo, Hamilton, the Greater Toronto Area (GTA) and Montreal, though some markets were hit harder than others.
Tighter lending standards
Tighter lending standards contributed to this situation, said Arsenault, who doesn’t expect long-lasting repercussions based on past buyer resilience and adaptation to policy changes.
“There’s typically a period of retrenching, but then they get back in the market,” she said. “We have no reason to expect that this time around is going to be any different.”
New townhouse sales are generally running well below last year.
New condominium sales have been mixed:
* Montreal is in the third year of an upturn;
* Sales plunged in the GTA after a record 2017;
* The Kitchener-Waterloo and Hamilton markets benefitted from both local buyers and migrants from the more expensive GTA market;
* Vancouver is still adjusting back to more typical sales levels after a record performance in 2016.
Still, new condo unit inventories in Vancouver and the GTA — which have the highest-per-square-foot condo prices in Canada — are below historical levels at 3.3 and 4.8 months of available supply, respectively. The typical average in the past was about 11 months, said Arsenault.
“When inventories are low, there’s typically upward pressure on prices. We’ve certainly seen that in the Greater Toronto Area and the Vancouver market in recent years.”
People still want to buy homes, however. Altus research shows more renters intend to buy homes — except in Vancouver, where continuing affordability issues have left potential buyers wary.
Boukall outlined the challenges and opportunities in each market, and also looked at some recently successful new housing projects. Here’s a snapshot of the research:
Government regulations and higher interest rates are impacting consumer demand. Coupled with housing affordability and new home pricing issues, this is making ownership challenging for first-time homebuyers.
For builders, construction costs and land price inflation are making new development challenging. Long approval timelines and development charges add to the issues of bringing new projects to market.
A slower sales pace and better pricing will improve opportunities for buyers to enter the market. A less frenzied market pace means it might become easier to acquire land and put projects together.
An expanding transit network is opening up new areas for intensification and redevelopment.
Concord Pacific’s Park George in Surrey is a high-rise tower which sold 70 per cent of its units at launch for $875 per square foot. Sixty per cent of its units are one bedroom and smaller.
Polygon Homes’ Union Park in Langley is a six-storey woodframe condo which sold 89 per cent of its units at launch for $550 per square foot.
A high amount of completed and unsold inventory, along with higher resale inventories, are creating a large stock of housing. Price decreases and incentives are impacting project viability, with some condo developments switching to rental.
Growth in the supply of purpose-built rentals will impact investor demand, and new quality rental units might encourage young consumers to rent for longer periods.
A natural gas pipeline in British Columbia might create employment for Edmonton-based trades and suppliers. Housing affordability remains very positive.
New transit infrastructure will help connect residential and employment areas.
Katz Group and ONE Properties’ Sky Residences is a 66-storey mixed-use tower which has sold more than 180 units for $750 per square foot by leveraging the ICE District’s downtown amenities.
Mattamy Homes’ Stillwater is a fee-simple, row townhouse greenfield development priced at $210 per square foot, which is lower than a condo townhouse.
Elevated unemployment, a slow economic recovery and stubbornly high office vacancy rates downtown will impact housing demand, including in the inner city. Job growth outside of the energy sector has helped boost total employment in the market.
No market pricing growth, and potential declines, will impact developer margins in the face of cost inflation. Higher resale inventories in both condo and single-family markets are impacting new housing.
A lack of housing near new employment growth regions around Seton and Calgary International Airport will continue to drive new housing demand in those areas. Calgary has very good housing affordability, particularly in its suburbs.
Cedarglen Living’s Seton Park Place is a four-storey, woodframe condo close to South Health Campus and the Seton retail district which sold more than 100 units at $300 per square foot.
Brookfield Residential’s The Link at Symons Gate is a mixed row and stacked townhouse development selling for $280 per square foot.
“One of the problems we’ve seen in Calgary has been projects in the peripheral regions that are launching at slightly above market pricing,” Boukall added. “If you’re priced within market pricing, which for apartment product is below $325 per square foot, generally you’re able to find some success.
“But in certain pockets, we’ve seen projects shift out of the market when they attempted to launch and couldn’t find market demand.”
Kitchener-Waterloo and Hamilton
Markets outside of the GTA face the same construction cost-escalation pressures as those in the GTA. Transit infrastructure still lags demand, which creates longer and less convenient commutes.
Resale home prices are much more affordable, creating alternatives to new construction. However, less pent-up demand for new housing can mean a slower sales pace and longer project timelines.
Land pricing is much lower outside the GTA, creating opportunities for more affordable housing development.
New transit infrastructure could materially improve commuting across the Greater Golden Horseshoe, while co-working spaces and flexible work environments could also make commuting into the GTA less important.
Growth in the technology sector will support job increases in Kitchener-Waterloo.
“For the average price of a new condo in the GTA, you can buy a new single-family home in Kitchener-Waterloo and Hamilton,” said Arsenault.
IN8 Developments’ DTK Condos in downtown Kitchener is a high-rise which sold more than 430 units in six months at $550 per square foot.
Coletara Development’s Platinum Condos is a high-rise in downtown Hamilton which sold 90 per cent of its units in four months at $560 per square foot.
Government regulations and higher interest rates are impacting consumer demand.
Development charges and cost escalations are impacting project viability, leading to some project cancellations. Long approval timelines and development charges make it challenging to bring new projects to market.
Housing affordability and new home pricing make ownership challenging for first-time homebuyers, even though the willingness is still there.
The removal of rent controls on new construction might help spur investor demand and new purpose-built rental buildings. There’s been slower price growth in condo units.
An expanding transit network is opening up new areas for intensification and redevelopment.
Empire Communities’ Empire Phoenix is a high-rise in Etobicoke close to the Mimico GO Transit station and Lake Shore Boulevard which was 70 per cent sold in four months at $760 per square foot.
Sorbara Group and Metropia’s The Way Urban Towns is a stacked townhouse development in Mississauga’s Erin Mills area that’s 90 per cent sold at $525 per square foot.
Strong new home sales have significantly increased the number of homes under construction, which could create further cost challenges. Labour shortages and construction capacity issues might impact proposed projects.
Rising prices and housing affordability concerns may encourage government regulations, including a foreign buyer tax. A healthy supply of new purpose-built rental buildings may provide an affordable alternative to ownership as interest rates rise.
Montreal continues to experience strong economic growth, though pricing for new condo unit supply remains affordable compared to other major markets.
New transit infrastructure will improve transportation options and expand redevelopment opportunities.
“Montreal has been the bright spot right across the country in terms of new home sales growth,” added Boukall. “We’ve seen strong demand and a lot of product launches, but one of the challenges that’s creating is we’re getting record levels of units under construction.
“Some of the cost challenges we’ve seen in Toronto and Vancouver are expected to potentially impact the Montreal market in short order. We’ve already seen labour shortages affect construction capacity.”
Looking forward to 2019
Arsenault said new home sales are expected to grow in Kitchener-Waterloo, Hamilton and the GTA.
“We’re expecting the Ontario markets to do better in 2019 than this year. Of the seven markets as a whole, we think the GTA has the most relative upside potential. That’s a function of the depth of the decline this year and the fact that there’s still a lot of interest in the condo sector.
“On the single-family side, we think there’s potential for additional projects. It’s not going to be a lot, but perhaps that market has reached the bottom in this cycle. The other key factor behind that outlook is our knowledge of potential upcoming product launches. There’s a lot in the pipeline.”
New home sales should be relatively flat in Calgary and Edmonton next year, and could drop in percentage terms in Vancouver and Montreal, according to Arsenault.