Newly Built Home Prices Slip for a Second Month in GTA as Homebuyers Hit the Brakes

Rising interest rates and soaring inflation prompted new construction homebuyers in the Toronto region to press the pause button in April. With the benchmark price of a new single-family home falling below the February peak for a second consecutive month, David Wilkes, CEO of the Building Industry and Land Development Association (BILD), warned of volatility in the housing market in the months ahead.

The price of a new construction detached, semi-detached or townhouse was $1.79 million last month. Although that was a 28% year-over-year jump, the new benchmark is below February’s $1.86 million and March’s $1.84 million. That price should be taken with “a grain of salt,” because it reflects the type and the mix of homes available for sale in a given month, said Wilkes.

“Rising interest rates are affecting the market, and the ability to qualify at the benchmark price of ($1.79 million) for a single-family is becoming harder. The market is reflecting some of the changes in short-term demand, increasing costs for interest rates and that we have the residual impact from the pandemic,” he said.

Single-family homes sales plunged 47% year-over-year in April, putting sales 54% below the 10-year average, according to the BILD data compiled by Altus Group.

Condo sales also dropped 24% year-over-year and prices fell from the March record of $1.25 million. But April’s $1.19 million benchmark price remained 12.3% higher on an annual basis.

April’s new condo sales would have been considered robust in the pre-COVID-19 world, said Altus research manager Edward Jegg. But, he said, “the headwinds of rising interest rates and soaring inflation are starting to act as a drag after an exceptional 16 months. Meanwhile, single-family sales continue to languish as affordability issues persist.”

Wilkes warned the housing supply shortage remains the overarching issue in terms of affordability. It’s important, he said, not to be distracted by shorter-term influences — not only rising rates but construction industry strikes, increased material costs and supply disruptions.

“These shorter-term issues, both on the supply and demand side, will work their way through the market. It can’t be a reason we take our eye off the long-term need to increase supply so that when we are influenced by these short-term shocks, we have a market that is more in balance and can absorb those shocks,” said Wilkes, who was a member of the Ontario Progressive Conservative government’s housing supply task force.

Housing inventory did, however, increase in April to 9,327, from 7,220 in March. In the most short-supplied single-family category, there were 1,391 single-family lots in April, up from 830 the previous month.

“We’re at about three months’ inventory for single-family, four months for condos … we need more than that to have a stable market around that nine-month supply,” he said. Inventory refers to how many homes are available for sale at the end of the month, including pre-construction, under construction and newly built housing units. The number of months’ inventory refers to the time it would take to sell the current inventory at the current sales rate.

“We still are not anywhere near close to a balanced market and we need to continue to pursue initiatives that will increase supply over the course of the medium term.”

Source: The Star