New home buyers continue to see cooling house prices

New home prices in Canada were unchanged in December following three months of declines and they were unchanged in 19 of the 27 census metropolitan areas (CMAs) surveyed, down in six and up in the remaining two, according to a new report released Monday by Statistics Canada.

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“High mortgage rates continued to impact the housing market in December as the Bank of Canada increased the policy interest rate again at the beginning of the month, bringing it to 4.25 per cent,” said the federal agency.

“In December, new home prices decreased the most in Regina (-0.4 per cent) month over month. Similar weakness was found in the resale market, with the Saskatchewan Realtors Association noting that detached home prices were down 1.1 per cent for the month.

“The new home market saw prices drop in Winnipeg, Saskatoon, London, Kelowna (all -0.3 per cent) and Edmonton (-0.2 per cent), with builders noting deteriorating market conditions as the reason for the decrease. Price increases were reported in Montréal (+0.3 per cent) and Calgary (+0.1 per cent) in December, as high interest rates were offset by increased demand and construction costs, as reported by builders.”

The report said new home prices rose at a slower pace in 2022 (+7.7 per cent) compared with 2021 (+10.3 per cent). Prices for new homes grew quickly at the start of 2022, increasing 2.5 per cent in the first quarter of 2022 compared with the fourth quarter of 2021, as interest rates were at an all-time low. Prices continued to rise in the second quarter of 2022 (+1.9 per cent) compared with the first quarter, as the cost of building a single-detached house (+5.8 per cent) and townhouse (+5.7 per cent) grew.

New home prices increased the most in Calgary in 2022 (+16.3 per cent) compared with 2021 (+9.0 per cent). The first six months of 2022 saw prices surge in the CMA by 11.4 per cent. The rapid growth in Calgary was attributable to increased construction costs and high housing demand in the CMA. Also, home prices in Calgary were more affordable compared with other hot real estate markets in Canada, attracting buyers from other provinces, especially Ontario and British Columbia, said StatsCan.

“High mortgage rates have resulted in reduced home sales and increased inventory, with the Canadian Real Estate Association reporting a 25.2 per cent decline in national residential sales in 2022 compared with 2021, thus decreasing home prices. The Bank of Canada has noted that the policy interest rate may need to rise further to bring supply and demand back into balance and return inflation to target,” said the report. As well, since their high in March 2022, softwood lumber prices have fallen rapidly, by 57.3 per cent until December 2022,” said the report.

“This decrease in lumber prices, along with elevated mortgage rates (plus the risk of further increases in 2023), should continue to cool new house prices, at least during the first half of 2023. As mortgage rates stabilize and uncertainty in the market calms, housing demand and growth in prices should edge up in the latter half of 2023. This, along with other factors such as increased immigration targets and continued interprovincial migration, especially in the hottest markets with a limited supply of new homes, could lead to price increases in the new home segment.”

(Mario Toneguzzi is Managing Editor of Canada’s Podcast. He has more than 40 years of experience as a daily newspaper writer, columnist, and editor. He worked for 35 years at the Calgary Herald, covering sports, crime, politics, health, faith, city and breaking news, and business. He works as well as a freelance writer for several national publications and as a consultant in communications and media relations/training. Mario was named in 2021 as one of the Top 10 Business Journalists in the World by PR News – the only Canadian to make the list)