Photo: James Bombales
The following is a guest contribution by Ben Myers, President of Bullpen Research & Consulting, a boutique development advisory firm that produces housing demand, land valuation, and pricing recommendations studies for real estate owners, developers, and lenders. Ben keeps clients up to date on current macroeconomic and site-specific housing market conditions that can impact their active or proposed new home projects.
New condominium apartment sales have slowed down during the first couple months of 2019 in the Greater Golden Horseshoe (GGH), which includes the Greater Toronto Area (GTA). One of the reasons there were fewer sales is a lack of project launches. That begs the question, are developers not launching because they don’t have sites ready to launch, or are they not launching because sales are poor? It is more likely a lack of product to sell, as most of the well-priced new developments that have hit the market in early 2019 have sold quickly.
When it comes to the new single-family or ground-oriented housing market, the conditions are strikingly different, as 2018 was one of the worst years for new low-rise sales since the 1990s. Single-family sites are still launching. Some are having success and others are not — the market is extremely price sensitive (maybe hiring a third-party market analyst to help you with values is a good idea: wink, wink).
A look at the new home data might help shed some light on GGH market conditions.
The chart below looks at the average pricing for the most popular new home floorplans on BuzzBuzzHome over the past 15 months.
When looking at the average price per square foot (psf) for condominium apartments in the GGH, prices are up 11 percent annually from $765 psf in Q1-2018 to $852 psf in Q1-2019. Prices for single-detached and semi-detached homes are up 6 percent year-over-year, and townhouses are up 2 percent.
When it comes to average selling prices, the values are a little wonkier: condo apartments are up 10 percent annually but have dropped in price from Q3-2018. Singles are up 7 percent annually, but are also way down from Q3-2018. Townhouses have dropped 5 percent annually, but average pricing has been fairly flat over the past four quarters.
Figured out the market yet?
One of the problems is using averages, which can be skewed by luxury product. When looking at median prices, the direction of each market becomes more apparent. Singles/semis are up 15 percent, townhouses are down 1 percent, and condos are up 12 percent.
The results for the single-family segment are a bit strange given the slower take-up of new product, the flat resale housing market, and the new mortgage stress test, which would all suggest that there would be downward pressure on pricing.
The other potential issue is the composition of units in each sample for single-family and townhouse product. Are they larger units? Do they have a higher or lower level of interior finish, bigger balconies, more lot frontage, less lot depth? Are they bungalows? Are they two-storey or two-storey homes? Is there more online user activity for new home subdivisions in Richmond Hill or Welland?
The chart below tries to eliminate the influence of some of those factors by comparing the average price of popular single-family and townhouse units on BuzzBuzzHome by project. This compares projects that have been open for over a year.
Some projects have seen prices grow by 20 percent annually, while others have seen a drop of 16 percent from Q1-2018. Overall, 28 projects went up in price and 28 projects went down — keeping in mind that the projects are the same, but the unit types within those project may have changed (ie, they had 60’ singles for sale in Q1-2018 and 20’ towns in Q1-2019).
The only concrete conclusion that can be made is the single-family and townhouse market is still adjusting to a slower sales environment, tougher credit conditions, and the aftermath of bubble-like conditions in 2017. Despite the slower sales, it’s still more likely that a developer will raise their prices than lower their prices. Many of the homes in these communities took years, and in rare cases, decades to get approved, so developers are reluctant to fire-sell units to move product.
In closing, builders and developers have overhead, they have to service their debt, and they often have equity or other financial partners that don’t want to wait for the market to boom again before selling product. With that said, you may have to do some significant research to understand if a new home community is offering competitive pricing (BuzzBuzzHome is a good place to start), but 2019 might provide some unique buying opportunities and very valuable incentives, as the development industry gets creative in their attempt to spark the market again.