Newly built houses hit record price in October as supply dwindles

Newly built houses hit record price in October as supply dwindles
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New construction single-family home prices hit a new record in the Toronto region last month with a $1.66-million benchmark that was 36.6 per cent above October 2020’s $1.21 million.

It was the second month in a row that the price for newly built detached, semi-detached and townhouses rose more than 30 per cent, as supply dwindled to the second lowest level on record.

There were only 1,138 new homes available to buy in the GTA last month. It was the second lowest recorded level of inventory in new single-family homes, according to the Building Industry and Land Development Association (BILD) that represents homebuilders.

March 2017 had the lowest inventory on record since Altus Group began tracking sales and prices for the association.

Inventory levels include homes in the pre-construction phase, those being built or those that have been finished but remain unoccupied.

Unless there’s a change in current market conditions, including low interest rates and high demand, BILD doesn’t expect the trajectory to change any time soon, said Justin Sherwood, senior vice-president of communications.

“The prices you’re seeing are a reflection of the market conditions out there,” he said. “We’ve got really low inventories, you’ve got supply chain disruptions that are driving material costs and labour costs that are going up and then, you’ve got high demand on top of that,” he said.

One potential barrier to further price growth could be a rise in historically low interest rates, said Sherwood.

“If you see an increase in interest rates you may see potential customers pulling back,” he said.

The Bank of Canada has signalled it may begin raising interest rates in the first half of next year as a response to inflation.

Last month’s 1,112 single-family sales was 14 per cent below the 10-year average.

But it was the fourth highest October for sales on the condo side of the market that includes stacked town homes, since Altus Group began tracking the homebuilding industry in 2000.

Benchmark condo prices saw a more moderate 6.2 per cent year-over-year increase in the benchmark price to $1.05 million in October.

“It just demonstrates continued strong interest in that kind of product, specifically in the locations those products are being built — the downtown cores across the GTA,” said Sherwood.

The pandemic may have generated renewed focus on single-family homes as consumers searched for more space in which to work and study. But Sherwood said it’s time to revive discussion of missing middle housing that provides an alternative to single-family homes and high rises. Although the GTA is seeing more midrise construction, there is still room to expand that segment, he said.

“It’s the six- to eight-storey, slightly outside of the downtown core, that can add gentle density to communities where there may be some available land. It could deliver the housing in a price point that may be more attractive,” said Sherwood.
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