The cost of a new home in Canada showed little change in the final months of 2021, growing at the slowest pace in more than 18 months. Yet, prices are expected to keep inching up at least throughout the first half of 2022.
Today, Statistics Canada released its New Housing Price Index (NHPI) for December 2021. Last month, Canadian new home prices increased just 0.2 per cent nationally, the lowest rate recorded since June 2020.
By province, the highest monthly increases were reported in Winnipeg, Kitchener–Cambridge–Waterloo and Saint John-Fredericton-Moncton at 2.8 per cent, 2.2 per cent and 1.1 per cent, respectively. Prices rose month-to-month in 16 of the 27 census metropolitan areas (CMAs) surveyed. Costs in 10 CMAs remained unchanged, while Charlottetown was the only community that reported a drop in monthly prices by 0.2 per cent.
The NHPI, which applies to new single residences, semi-detached homes and townhomes, measures changes over time in the selling prices of new residential homes that are agreed upon between the contractor and the buyer when the purchase contract is signed.
Low new home inventories likely fueling home prices
Record-low inventories were likely the culprit that contributed to December’s price increases.
According to the Winnipeg Regional Real Estate Board, new listings were 16 per cent lower in December 2021 compared to the same month in the previous year. Meanwhile, the Kitchener–Waterloo Association of Realtors found that inventory reached the lowest level on record in December, falling to just 0.2 months worth of supply.
In Saint John, Fredericton, and Moncton, the Canadian Real Estate Association (CREA) reported that the number of months of inventory in New Brunswick dropped from 3.8 months to 2.2 months over the course of a year. Active listings also fell 56.6 per cent below their five-year average to the lowest recorded amount in more than two decades for the month of December.
“With the number of sales outpacing new listings available, supply shortages in New Brunswick continued to be a strong driver of price increases of new and resale homes,” said the Statistics Canada report.
2021 records highest national price growth since 1989
On a year-to-year basis, the cost of a new home in December 2021 was up 11.6 per cent nationally compared to the same month in 2020. Kitchener–Cambridge–Waterloo reported the highest annual price increase, rising 30.7 per cent from 2020 to 2021. This increase breaks the city’s previous annual growth record, which was set back in October 2021.
Notable price jumps were also recorded in Windsor and Winnipeg, where values were up 22.6 per cent and 22.2 per cent year-to-year.
In 2021 overall, new home prices in Canada increased 10.3 per cent nationally compared to 2020, the largest annual increase since 1989. Prices grew at the fastest rate in the first half of the year, when between January and June, costs rose 7.1 per cent. Kitchener–Cambridge–Waterloo knocked Ottawa from its rank as the CMA with the highest yearly price gains, as new home values increased 24.5 per cent in 2021.
In most of the 27 CMAs surveyed, supply levels dropped. By the end of December 2021, there was just 1.6 months worth of inventory according to CREA, the lowest level ever recorded.
Higher construction costs, supply shortages place pressure on prices
Soaring lumber costs as a result of supply chain challenges, coupled with higher demand for home renovation and building, led to domestic construction material shortages last year, impacting new home prices.
“In the second quarter of 2021, the cost of building a single-detached house grew by 23.9 per cent, partly as a result of the rise in prices of lumber,” explained the report. “Additionally, builders struggling to secure building supplies released fewer lots at the same time, which in turn reduced the available supply of new homes, further pushing up prices.”
The Bank of Canada is expected to hold the policy interest rate until mid-2022. As interest rates have yet to move up, Statistics Canada anticipates that new home prices will continue to rise in the first half of 2022 and possibly throughout the year as “buyers attempt to secure lower interest mortgages before the Bank of Canada announces rate increases.”
Since mortgage rates are still historically low and Canadian households have accumulated a record amount of savings during COVID-19, the rise in rates may still not be enough to dampen the housing market in the near future, the report predicted.
As it will take time for builders to return to a pace that will allow for “balanced supply and demand,” the housing market will continue to feel the effects of a supply shortage.
“This will continue to put upward pressure on prices until inventory can be replenished,” said the report. “As well, building construction materials will continue contributing to the rise of new home prices in the short term, as supply chains continue to struggle with backlogs spurred by the COVID-19 pandemic.”
