September 2022 new-home sales continued the lethargic pace of recent months, coming in almost 75 per cent lower than the year before.
According to the latest monthly market report prepared by industry analyst PMA Brethour Realty Group on behalf of the Greater Ottawa Home Builders’ Association, there were 89 sales in September, compared to the 343 sold in September 2021.
“Unfortunately, the Ottawa new-home market missed out on the seasonal lift we usually see in September,” says PMA Ottawa president Cheryl Rice. “Even though September’s sales at 89 showed an increase over August numbers, September sales were the lowest for that month since 1981.”
September’s performance continued a trend that began in April, when the city’s red-hot market was brought to a halt by the combination of rising prices, inflation and interest rates, finally reaching a threshold that buyers have been increasingly hesitant to cross.
Despite a strong start to the year, new-home sales are now down 27 per cent for the year compared to last year, with this year’s sales at 2,582 versus 3,534 last year.
“We’re going to need a couple of more months of sales to see the impact on market performance resulting from earlier interest rate hikes, as well as the Bank of Canada’s most recent 0.50 per cent increase (on Oct. 26),” Rice says.
As we have been seeing since the spring, Rice expects the current downturn in the market to result in some builders holding off on opening new projects for the time being. In fact, there are multiple developments that were expected to be open by now that have yet to launch.
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Consumer confidence and demand for new homes will likely remain low into at least the first two quarters of 2023, she says. “In the meantime, product is likely to trickle into the marketplace, keeping pace with consumer demand.”
She also expects labour shortages will be another factor causing delays in construction schedules, pushing new openings and sales out by several months.
Affordability issue
Affordability continues to be a challenge, she notes, as buyers struggle with high inflation and increasing interest rates, with another rate increase expected before the end of the year.
Unlike last year, when more than half of the homes sold in September were singles, this year, more than half were townhomes, although that speaks to availability as well as affordability. There were frequent periods last year when townhomes were snapped up so quickly that builders couldn’t keep them on offer.
Buyers hoping to see price reductions will be disappointed. Any price reductions being seen in the new-home market are typically on inventory (or already built) homes.
“Under cost pressures that make it difficult for builders to reduce prices, many of them are instead offering hefty incentives to attract buyers,” Rice says. “But while incentives will help to sell some new homes, it won’t be enough to spark a turnaround.”
She also notes that the market slowdown has created a huge gap in product offerings. “What was affordable for many consumers is no longer within reach. This is an opportunity for builders to creatively fill the gap with new product designs at new lower prices, and these innovations are right around the corner,” she predicts.
