Is it a good time to buy a new single-family home?

In early 2017, the average asking price for a new single-family house in the Greater Toronto Area increased by a whopping 45 per cent annually. I think everyone in the industry was wondering what was going on, because the values didn’t make sense in comparison to the resale market, despite the decade-low number of units available.

As market prices bubbled up, the Ontario government decided it was time to intervene, announcing a 16-point Fair Housing Plan in April of 2017. The plan included a non-resident speculators tax among the 16 new rules that were intended to stabilize the market. The impact on new single-family transactions was almost immediate, as buyers, and especially investors (that had recently increased their interest in suburban properties), became more cautious. The implementation of the new housing measures resulted in prospective buyers adopting a wait-and-see attitude.

A slow sales environment in the lowrise housing market hasn’t been experienced in 10 years, and it left many developers wondering what strategy to implement. Should they build bigger houses for the same price or smaller more affordable product? Should they add more interior finishes while keeping the price unchanged, or offer incentives like lower down payments, no closing costs, or finished basements?

The big problem is that the availability of single-family land for development is still limited and developers don’t want to fire-sale their inventory to move product. Unlike someone selling their resale house because they’ve taken a job in another city, many developers don’t have the same sense of urgency to lower their prices. They’d prefer to wait out the downturn, understanding that they need to keep the lights on at their office and they too have to pay their mortgage (on their land loan).

A developer referred to 2018 as “a lost year” – instead of lowering prices to generate sales, developers and builders decided to wait until this year to see if conditions would improve. Developers that rushed to lower their asking prices in early 2009, during the global economic meltdown, ultimately regretted their decision, as the market came rushing back quickly.

According to the Altus Group, there were nearly 3,400 new single-family home sales from January to May this year, a 38 per cent increase year-over-year. However, the average asking price for unsold lowrise units continues to decline, now down three per cent annually from May of 2018. The market continues to send mixed signals, sales up and prices down – generally when you see more demand, you see higher prices. On the positive front, several builder releases experienced sales success, with Adena Views, Lotus Pointe, The New Lawrence Heights, and Whitby Meadows all selling 90 per cent or more of their 2019 lot releases.

So, what does that mean for you as a future new-home purchase? Perhaps you’re waiting for the resale market to stabilize further. Well, May 2019 figures from the Toronto Real Estate Board showed that resale transactions for single-detached houses were up 25 per cent over the same month last year, and prices increased 1.1 per cent annually.

There are other figures to look at to determine if further price reductions for new homes are on the horizon. The average price per acre for low-density development sites in the GTA in 2018 was $1.69 million, and the average price through the first five months of 2019 shows a very small decline to $1.68 million. That’s a decline from about $241,500 per lot to $240,000 per lot. So, if the developer passed that $1,500 savings to you on the average priced single-family home of $1,109,500, you’d only pay $1,108,000! Needless to say, it might not be worth it to wait.

In conclusion, you’re not likely to see any big increases in new single-family house prices in 2019 or 2020, and you’re not likely to see any big decreases in new single-family house prices, either. So ask yourself, do I want that new house now, or later?

Lastly, buy for the long term, buy what you can afford, and do your own research. Good luck.