Sought-After Neighbourhoods Keep Vancouver and Toronto Housing Market Hot

Lydia McNutt
other

 Softer detached housing values prompt new round of home-buying activity in hot pockets of Greater Vancouver and Greater Toronto housing markets

Q2 detached home sales up in 40% of GTA pockets, 31% of GVA, compared to Q1

While detached housing values show substantial year-over-year gains in the first half of 2022, successive increases to the Bank of Canada’s (BOC) overnight rate put a damper on price appreciation in the second quarter of the year in regions across the Greater Vancouver and Greater Toronto housing market, according to a report released today by RE/MAX Canada.

To illustrate, the RE/MAX Canada 2022 Hot Pocket Communities Report compared market activity in the first and second quarter of 2022 in terms of unit sales and prices, analyzing 60 Toronto Regional Real Estate Board (TRREB) districts and 16 regions within the Real Estate Board of Greater Vancouver (REBGV), and six areas in the Fraser Valley Real Estate Board (FVREB). In the Greater Toronto housing market, the Central and West End of the 416 held up relatively well in terms of average price while Durham, Peel, York, Halton and Dufferin surrendered some of the staggering gains realized in recent years. Preliminary estimates of Q2 median prices in Greater Vancouver’s Squamish area and the Sunshine Coast were comparable to first quarter figures, while West Vancouver and Vancouver West/Howe Sound reported moderate increases.

“Buyer sentiment changed virtually overnight as growing geopolitical concerns and spiralling inflation destabilized global markets, leaving the Bank of Canada little option but to raise interest rates,” says Christopher Alexander, President, RE/MAX Canada. “Those fast and furious incremental increases placed downward pressure on housing sales and prices, improving affordability on one hand, but eroding it on the other.”

Price Trends in the Greater Toronto Housing Market

RE/MAX found that second quarter values in the Greater Toronto housing market were 10 to 15 per cent below Q1 levels in Durham (-14.6 per cent), York (-12.9 per cent), Halton (-12.7 per cent), Dufferin (-12 per cent) and Peel (-11.2 per cent). Just 15 per cent of GTA markets noted an uptick in average price in the second quarter of the compared to the heated first. Five of those markets are located in the central core, including Dufferin Grove, Little Portugal, Trinity-Bellwoods, Palmerston-Little Italy and Kensington-Chinatown (C01); Yonge-St. Clair, Casa Loma, Wychwood and the Annex (C02); Forest Hill South, Oakwood-Vaughan, Humewood-Cedarvale and Yonge-Eglinton (C03); Mount Pleasant East and West (C10); and Leaside and Thorncliffe Park (C11). Three are in the West End, including High Park North, Junction Area, Runnymede-Bloor West Village, Lambton-Baby Point, Dovercourt-Wallace, Emerson and Junction (W02); Stonegate-Queensway (W07); and Islington City Centre, West Etobicoke, West Mall, Markland Wood, Eringate-Centennial-West Deane, Princess, Rosethorn Edenbridge, Humber Valley, Kingsway South (W08). One market that experienced price growth is located the East End – South Riverdale, Greenwood-Coxwell, Blake-Jones and North Riverdale (E01).

View & download GTA heat maps

“Given that the core has traditionally been more resilient, bolstered by strong demand, a finite supply of homes available for sale, higher household incomes, and greater equity at the top end of the market, the results are not unexpected,” says Alexander. “The price softening was clearly more evident in suburban areas and the outer perimeters of the 416, most of which experienced strong upward momentum during the height of the pandemic as buyers sought to leave the city.”

Price Trends in the Greater Vancouver and Fraser Valley Housing Market

Also bucking the downward trend in the Greater Vancouver housing market in terms of preliminary estimates of Q2 median values are the core regions of Vancouver West (+2.4 per cent) and West Vancouver/Howe Sound (+8.2%). Squamish and the Sunshine Coast also held steady, with no change reported between the first and second quarters. Seventy-five per cent of markets in Greater Vancouver, however, experienced a downturn in Q2 median values, coming off peak levels reported in the first quarter of the year. Most of the declines reported were below 10 per cent, with one outlier – Whistler/Pemberton, which fell by just over 16 per cent ($3,020,000 vs. $3,622,500). Given fewer sales and the types of detached properties in that particular market, an increase in the number of homes sold at lower price points could drag the median price down. In the Fraser Valley, percentage declines in average price ranged from a low of just over three per cent in Langley to a high of close to 13 per cent in Delta – North between the first and second quarter.

View & download GVA heat maps

Prices Easing, But Housing Market is Relatively Stable

“While we have seen some easing in prices, the sky is nowhere near falling,” explains Elton Ash, Executive Vice President, RE/MAX Canada. “In fact, there is relative stability in terms of market conditions, so buyers shouldn’t expect big bargains. Sales-to-active listings remain squarely in balanced territory overall and even tight in some areas. In Vancouver, for example, supply was lower this June than last in 50 per cent of markets and sales are down accordingly. This trend will likely keep prices fairly stable moving forward.”

RE/MAX REALTORS® also noted a reversal in pandemic trends over the past six months, as work-from-home situations change and buyers rethink the exodus to suburban and rural areas. Second-quarter detached home sales rose year-over-year in 40 per cent (24/60) of regions across the Greater Toronto housing market, with the vast majority of increases noted the 416 area code (20/60). However, affordable price points also continued to draw buyers. Durham Region was also a hot spot with half of its markets reporting an uptick in home-buying activity (4/8).

The Greater Vancouver housing market experienced an increase in sales in 31 per cent of regions (5/16), including Island-Gulf, North Vancouver, Squamish, Sunshine Coast and Whistler/Pemberton.

“For those buyers that were active in Q2, improved housing affordability due to easing prices and the threat of higher rates down the road clearly provided the impetus for many to leap into detached home ownership,” explains Alexander. “Greater selection, particularly in coveted hot pockets, also played a significant role in April and May as the pandemic-fuelled buying spree drew to a close. Buyers locked into five-year fixed terms as the overnight rate hovered between one per cent in early April to 1.5 per cent in early June.”

There have been some existing sellers who have used this opportunity to trade up to larger homes or more desirable neighbourhoods closer to the city. The ‘spread’ – the difference between the selling price of an existing property and the purchase price of a new one – has narrowed considerably, and given mortgage portability, the move can work in favour of the buyer. Condominium and strata owners have also seen benefits in the “spread” as values for their apartments and townhomes have remained relatively stable, while detached housing values have softened.

“Buying intentions overall are expected to remain healthy, even if some buyers pause temporarily,” says Ash. “While interest-rate hikes have edged up carrying costs, we can’t discount the effect of the tight rental market, which has seen average rents increase by double-digits year-over-year in the GVA and GTA. As potential buyers face those realities, many will still conclude that the benefits of ownership make better financial sense.”

Several regions in the Toronto housing market stood out in terms of sales. Some of the areas that have seen the greatest activity include the West End, where a single-detached home on a 50-ft. lot with a price tag under $1.5 million is still a possibility. Both W04 (comprised of Yorkdale-Glen Park, Briar Hill-Belgravia, Maple Leaf, Rustic, Brookhaven-Amesbury, Beechborough-Greenbrook, Mount Dennis, Weston and Humberlea-Pelmo Park) and W06 (which includes Alderwood, Long Branch, New Toronto, and Mimico) noted an uptick in sales in the second quarter compared to the first, with the average price in W04 hovering at just over $1.3 million and the average in W06 sitting at just under $1.5 million.

The East End of the Toronto housing market saw sales climb 26.5 per cent in E01 in the second quarter compared to the first. With close proximity to the downtown core and the Lake Ontario shoreline, and an average price of $1,863,815, this community has proven exceptionally hardy under current circumstances.

Those seeking affordability helped prop up second-quarter sales in Ajax, Whitby, Clarington and Scugog in Durham Region. With the average price of a single-detached home hovering at just over $1 million in Clarington to just over $1.2 million in Ajax, the region has an abundance of entry-level product for cost-conscious buyers.

Properties at higher price points have also proven resilient across the Greater Toronto housing market, with detached sales over $2 million up 10 per cent in the first half of the year compared to the same period in 2021. Not surprisingly, the softening in overall price has brought out the bargain hunters in the luxury segment, which would explain the increase in sales in Bedford Park-Nortown, Lawrence Park North and South (C04), Rosedale, Moore Park (C09) and Leaside (C11) in the central core, where average prices hovered at just under $3 million, $4.1 million and $3.126 million respectively in the second quarter of the year.

Some of the most durable areas in the Vancouver housing market include Burnaby, Coquitlam and Port Coquitlam. These established communities are drawing purchasers who are looking for affordable detached housing with good accessibility to the downtown core, with preliminary estimates of the Q2 median values ranging from just $1.445 million in Port Coquitlam to $2.12 million in Burnaby. North Vancouver and Squamish have also held up well, with both experiencing rapid growth well before it was further accelerated by the pandemic.

Active Inventory Down in GTA & GVA

Despite the softening in housing markets overall, active detached housing listings in June were running almost 19 per cent below the 10-year average in the GTA, approximately 12 per cent below the 10-year average in the GVA and close to nine per cent below the 10-year average in Fraser Valley. This, at a time when builders are pulling up stakes and shelving proposed developments due to softer demand. While the impact of those decisions will not be felt immediately, the decision to withdraw will have major repercussions on housing markets in these major centres down the road.

“Inventory remains a puzzle that policy can’t solve in the foreseeable short or long term,” says Alexander. “It’s a real challenge, as supply of detached homes remains low from a historical perspective and also in the context of population growth and future needs. This will remain a crucial factor impacting Toronto and Vancouver, which are now seen as world-class markets. Tougher market conditions and a possible recession will be major market hurdles, but history reminds us that recessions often bring strong rebounds. There’s always a reason buyers say, ‘I wish I’d bought back then.’ Real estate has traditionally stood the test of time. Looking ahead, urbanization alone will be a significant boon to future housing demand, as Canada’s urban population is projected to grow by 10 million by 2050.” (Source)

 

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Canada’s high court won’t hear dispute over $1B Vancouver waterfront development

The Canadian Press
The Vancouver Sun

The feud began in 2015 when Concord argued Singapore-based billionaire Oei Hong Leong and his company, Canadian Metropolitan Properties, backed out of a deal to jointly develop the former Expo 86 Plaza of Nations site.

The Supreme Court of Canada in Ottawa. Photo by Chris Helgren/Reuters

The Supreme Court of Canada has refused to hear an appeal from property developer Concord Pacific Acquisitions, ending a long-running legal dispute over the billion-dollar development of one of Vancouver’s last parcels of waterfront land.

The feud began in 2015 when Concord argued Singapore-based billionaire Oei Hong Leong and his company, Canadian Metropolitan Properties, backed out of a deal to jointly develop the former Expo 86 Plaza of Nations site.

Oei and Concord boss Terry Hui had signed an initial agreement to turn the parcel on the northeast shore of Vancouver’s False Creek into a mixed-use community, including 30 storey skyscrapers, an ice rink, community centre and arts venue.

When talks collapsed seven years ago, Hui and Concord launched a civil suit, arguing the preliminary agreement with Oei was a binding contract.

The B.C. Supreme Court sided with Oei in 2019 and the B.C. Court of Appeal issued its majority ruling in January, with both courts finding the contract lacked enough “essential terms” to make it enforceable.

The decision from the Supreme Court of Canada means the lower court rulings will stand and, as is customary, the high court does not give reasons for its refusal to hear Concord’s appeal.

Oei and Canadian Metropolitan Properties have pressed on with development plans for the Plaza of Nations lands, now called Expo Gardens, and the company confirmed the project has nearly completed the City of Vancouver’s permitting process.

Oei has said he hopes construction can begin this year on the property he bought in 1990 for $40 million but now has an estimated value of $800 million.

“Now I can build something iconic for Vancouver and give something back to this city I love,” Oei said in a statement released after the B.C. Court of Appeal decision.

Concord, which still owns the land east of the Plaza of Nations at the northeast end of False Creek, is in the process of seeking permits to develop that site.

The B.C. Appeal Court decision was “disappointing,” the company said when the ruling was released in January, but added in a news release that, regardless of the outcome of its Supreme Court of Canada appeal application, it hoped development of the Plaza of Nations site would “soon proceed in the interests of the community at large.”

© 2022 Vancouver Sun

Metro Vancouver housing starts down 28 per cent in July

Frank O’Brien
Western Investor

Sharp drop from a month earlier is in step with a downturn in housing sales

 Bucking a national trend, Metro Vancouver July housing starts fell 28 per cent compared to a month earlier, according to the latest data from Canada Mortgage and Housing Corp. (CMHC).

Meanwhile, Vancouver-area residential sales through the multiple listing service were down 22.8 per cent in July from June, reports the Real Estate Board of Greater Vancouver.

Early data shows the sales decline has continued into the first half of August.

Across Canada, the annual pace of housing starts in July edged higher compared with June despite a slowdown in urban starts, CMHC reported. The federal housing agency said Canada’s  seasonally adjusted annual rate of housing starts in July was 275,329 units, an increase of 1.1 per cent from the previous month.

In Metro Vancouver, which includes Surrey and Langley, annual housing starts fell to 23,318 units in July, down from more than 32,300 a month before.

Starts across B.C. were down 14 per cent, month over month, to 45,527 new homes, CMHC reported.  This is in sharp contrast to neighbouring Alberta, where starts were up 9 per cent to 41,195 units.

Compared to a year earlier, July housing starts in Metro Vancouver were down 6 per cent from July 2021 and 2 per cent lower for the province.

Sales and listings of existing housing have continued to cool in August across the Vancouver region.

“Vancouver is taking a break from real estate,” quipped Kevin Skipworth, managing partner with Dexter Associates Realty in Vancouver.

Skipworth said early data shows the downward trend in housing sales, which began in March, has extended into August, but that the supply of homes for sale is falling even faster.

At mid-month in August, there have been 1,813 new listings in Greater Vancouver, 39 per cent below the mid-month pace in July which was 2,958 at that point. A total of 884 homes had sold as of August 15 in Greater Vancouver, compared to 1,252 homes sold at mid-July, which itself was 29 per cent below the mid-month pace in June, according to early data from the Real Estate Board of Greater Vancouver.

“This will likely produce around 1,800 home sales for the month of August, which would be the least amount for that month since 1998,” Skipworth noted.

 

© 2022 Western Investor

CMHC reveals latest pace of housing starts

Fergal McAlinden
other

Find out how residential construction fared across Canada in July

Canada’s annual pace of housing starts ticked upwards in July and posted a 1.1% increase over the previous month, the country’s national housing agency has revealed.

The seasonally adjusted annual rate of July housing starts was 275,329 units, according to Canada Mortgage and Housing Corporation (CMHC), up from June despite a drop in urban starts.

The pace of urban starts came in at 254,371 units, a decline of 0.8%, with single-detached urban starts falling by 2.3% (to 58,384 units) and multi-unit urban starts also slipping by 0.3%, to 195,987 units.

Rural starts came in at an estimated seasonally adjusted annual rate of 20,958 units, while the six-month moving average of the monthly seasonally adjusted annual rates rose from June – from 257,862 units to 264,426 last month.

 

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Canada’s inflation rate slows in July

Fergal McAlinden
other

Is the country finally starting to turn the corner on price growth?

Year-over-year inflation in Canada recorded its first decline since June 2020 last month, with the national statistics agency revealing that the annual inflation rate was 7.6% in July.

That also represented the smallest monthly increase since December 2021, Statistics Canada said on Tuesday, as gas price growth finally began to slow – rising by 35.6% on a yearly basis in July compared with 54.6% the previous month.

That reflected a lower worldwide clamour for crude oil due to the slowing global economy, heightened COVID-19 restrictions in China, and smaller demand for gasoline in the United States, StatCan’s report said – although it also noted food prices surged at their fastest pace since August 1981.

Food prices at grocery stores spiked by nearly 10% on a yearly basis in July, spurred largely by higher prices for bakery goods (up 13.6% year over year), eggs (up 15.8%) and fresh fruit (up 11.7%).

While that overall inflation figure is still far above the Bank of Canada’s target of 2%, it marks a welcome decline for a measure that has continued to balloon throughout 2022.

In June, the inflation rate hit 8.1% – its highest level for nearly 40 years. That rising figure has been a major factor in a series of interest rate hikes announced by the Bank of Canada this year, with the central bank’s next announcement, on September 07, expected to include another large rate increase.

 

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Canada home sales feel impact of rate hikes

Ephraim Vecina
other

Sales numbers declined in three-quarters of all local markets last month, CREA says

 Canada’s home sales decelerated for the fifth straight month in July amid the central bank’s sharp interest rate hikes, according to the Canadian Real Estate Association (CREA).

The total number of transactions made over Canadian MLS systems dropped by 5.3% between June and July, with sales activity slowing down in fully three-quarters of all local markets. The largest declines were seen in the Greater Toronto Area, Greater Vancouver and the Fraser Valley, Calgary, and Edmonton, CREA said.

“July saw a continuation of the trends we’ve been watching unfold for a few months now: sales winding down and prices easing in some relatively more expensive parts of the country as well as places where prices rose most over the past two years,” said Jill Oudil, chair of CREA.

“That said, the demand that was so strong just a few months ago has not gone away, but some buyers will likely stay on the sidelines until they see what happens with borrowing costs and prices. As they re-enter the market, they’ll find a bit more selection, but not as much as might be expected.”

Read more: Canada house prices – could a 25% drop be coming?

The number of new listings decreased by a similar rate of 5.3% on a monthly basis in July, bringing the sales-to-new listings ratio to 51.7% – a level slightly below the long-term average of 55.1%.

Across Canada, an average of 3.4 months of housing inventory remained as of the end of July, a significant recovery from the all-time low of 1.7 months seen during the early months of 2022.

The actual non-seasonally adjusted national average home price fell by 5% annually to reach $629,971. This level was heavily influenced by Toronto and Vancouver, with CREA remarking that excluding these two regions from the calculation shaves off $104,000 from the national average price.

“It’s only one month of data at this point but it suggests that some sellers are also playing the waiting game, and that is with an overall inventory of homes for sale that is still historically low,” said Shaun Cathcart, senior economist at CREA.

“The Bank of Canada is also expected to finish up their remaining rate hikes (100 basis points or so) over the next few months, which five-year fixed mortgage rates have mostly already priced in. We’ve already witnessed a sharp housing market adjustment this year, but it will hopefully be short-lived if conditions continue to show signs of stabilizing.”

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Canadian home sales fall for fifth month in a row, down 29% from last July: CREA

Canadian Press
The Vancouver Sun

The association says sales in July fell 5.3 per cent compared with June.

The Canadian Real Estate Association says home sales fell for the fifth consecutive month between June and July but this month’s drop was the smallest of the five. A new home is displayed for sale in a new housing development in Ottawa on Tuesday, July 14, 2020. Photo by Sean Kilpatrick /The Canadian Press

The Canadian Real Estate Association says home sales fell for the fifth consecutive month between June and July, but the latest drop was the smallest of the five.

On a seasonally adjusted basis, the association says sales in July fell 5.3 per cent compared with June. The actual number of sales last month was 37,975, down 29 per cent compared with July last year.

The average sales price was $629,971, down five per cent from $662,924 last July and on a seasonally adjusted basis amounted to $650,760, a three per cent drop from June.

Excluding the typically heated Greater Vancouver and Toronto Areas from the calculation cuts $104,000 from the national average price.

CREA chair Jill Oudil says such numbers are the continuation of trends that have been unfolding for several months and will result in sidelined buyers re-entering the market to find more selection but not as much as they may have expected.

She says new listings in July totalled 73,436, down six per cent from last July and on a seasonally adjusted basis, down five per cent from June.

 

© 2022 Vancouver Sun

Canadian home prices set to drop by almost 25% by end of 2023

Ephraim Vecina
other

Canadians are slowly but steadily returning to the city

Fergal McAlinden
other

Foot traffic across six major urban centres since April 2022 continues to tick upwards

 Things have never been quite the same in Canadian city centres since the outbreak of the COVID-19 pandemic in 2020, with widespread office closures, work-from-home orders and public health restrictions seeing foot traffic across the country’s major cities rapidly diminish.

Those measures have mostly eased across the country – and Canadians are slowly but surely making their return to downtown cores, according to commercial real estate giant Avison Young.

April 1, 2022, marked the lifting of most pandemic restrictions throughout much of Canada,  and a marked increase in downtown foot traffic has been registered in six major cities tracked by the company’s Office Vitality Index.

That’s a finding that Avison Young says indicates a clear desire among Canadians to return to downtown areas, businesses and office spaces.

The increase has been most noteworthy in Toronto, whose downtown foot traffic has spiked by 74% compared with its level at the beginning of April. Vancouver posted a 42% increase, with Montreal up 31%, Edmonton seeing a 24% rise, Calgary foot traffic growing by 20%, and Ottawa recording a 15% jump.

Foot traffic increases for Calgary and Edmonton since April 1 were more modest compared with other urban centres, according to Avison Young’s director of insights Marie-France Benoit (pictured top), because those cities started easing their public health measures earlier than that date – meaning they were already seeing higher numbers before the rest of the country lifted restrictions.

Read next: Hybrid work model likely to dominate: Avison Young executive

“They started seeing an increase in pedestrian traffic earlier in the year,” she told Canadian Mortgage Professional. “As of March 1 [when masking rules ended in Alberta], there was already an uptick there. So they show a little increase [since April 1], but in reality, it’s because they started earlier.”

Transit has also been a significant factor in differing foot traffic levels across major cities, said Avison Young’s president of professional services for the Americas, Sheila Botting (pictured below).

 

“In Edmonton, for example, you can get around by driving your car everywhere. In Toronto, if you’re on public transit, you [may be] fearful of your health and wellness by jumping on transit with other people,” she said.

“The second giant topic is around industry sectors. Some of the larger employers have moved to hybrid work environments before the pandemic, kind of fully acclimatized to what that would look like. And so therefore, [it’s] not as urgent, necessarily, to force people to return to the office.”

While Ottawa has been the slowest of those markets to pick up pace in terms of people returning downtown, the general trend is a “gradual but steady” increase in the number of people travelling into the city for work.

The return to a “vibrant downtown” has also been bolstered by rising numbers of people returning to the city for shopping or tourism, according to Benoit.

“When you go back to the office and the streets are busy and the restaurants are full, it excites you to go back to work,” she said. “We see this virtuous cycle gradually gaining momentum.”

While each city on the list is seeing higher foot traffic in downtown areas, the wide variance between the highest and lowest increases since April 1 indicates that a “one-size-fits-all” approach is ill-suited to judging return-to-office efforts across the country, Botting said.

Read next: Are in-person client meetings set for a resurgence?

Edmonton ranks among the top cities across North America for workers returning to the office, but Ottawa continues to lag near the bottom – highlighting the difference between those two markets and cities.

“Ottawa is still way down in return-to-office metrics, and even when we think about where we are today compared to earlier in the pandemic, the stats are much lower,” Botting said. “So that’s just really the type of market that they’re in.

“We have some clients in Ottawa who are not public sector, who are in another sector of the market, and they’re saying: ‘How do I manage my return to office? What does that look like? Do I require my employees to come back one day a month, two days a month?’ versus in Calgary and Edmonton [where] they’re saying, ‘We want you in three to four days a week.’”

Another interesting trend, Benoit said, is that pedestrian traffic in city centres is 20% lower on Mondays and 23% on Fridays – indicating that if Tuesday, Wednesday, and Thursday were isolated, a return to office that’s closer to pre-pandemic levels than the weekly average would be apparent.

That reflects a different type of return to the office compared with before the pandemic, and that a “diversity of hybrid models” are now the prevalent office arrangement compared with the five-day schedule prior to March 2020.

 

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Residential construction financing: Broker on the challenges

Fergal McAlinden
other

The sector has been impacted by rate increases – but some builders may see potential

 Rate increases throughout the year to date have impacted most sectors of Canada’s mortgage market – and the residential construction financing space is no different, according to a broker who deals in that segment.

Those hikes, coupled with higher costs of materials, have had a notable cooling effect on the clamour for residential construction, CLN Mortgages’ Ty Naemsch (pictured) told Canadian Mortgage Professional, even though he also noted that opportunity remained for builders in certain parts of the market.

“The residential construction financing space, up until the recent rate hikes, had been quite robust,” he said. “There has been a noticeable decline due to the rate hikes and rising construction costs – although recently, we have seen some of our builders entering the market to lower-priced lots and inventory that had to be sold.”

Where private mortgages for construction are concerned, rates have climbed in recent months, but not at the same pace as traditional mortgages, Naemsch said. Still, the new housing and mortgage climate, which has seen property values stall and in some cases atrophy, means that lenders are applying more caution in terms of the amounts they’re willing to part with.

“What has been impacted are the loan to values (LTVs) lenders are comfortable lending on, due to declining market prices,” he said. “The LTVs are now more conservative on the projects.”

Read next: Commercial sector: Veteran shares what brokers need to focus on

Statistics Canada recently revealed that the residential building construction price index rose by 5.3% on a quarterly basis in 2022’s second quarter – and on a yearly basis, that measure spiked by 22.6% in Q1.

Average annual growth in construction as a whole in the coming years is expected to be mild, ResearchAndMarkets.com has projected, with the years 2023-2026 set to see average growth of 2.2% per year.

That analyst’s report indicated that while the construction industry was expected to expand by 4% in real terms in 2022, other factors would weigh upon progress in the years ahead.

“The rise in construction material prices, labour shortages and the recent hike in interest rates could pose a downside risk to the industry’s outlook in the initial part of the forecast period,” the company said.

The uncertainty of what’s in store for interest rates in the remainder of the year makes forecasts on the future of the market difficult, Naemsch said. He said the likelihood of future rate hikes meant a slower pace was likely to prevail with fewer listings and sales ahead.

Again, that could provide an unexpected upside for builders who may see potential in a cooler market that may not have existed in busier times.

“In terms of construction, with costs expected to drop in the future, I can see more builders entering the market taking advantage of lower prices and construction costs,” he said.

The shifting market means it’s essential for brokers involved in residential construction to remain hands on with the builders they’re dealing with and involve themselves in the process from the beginning of the transaction to its end.

Read more: Residential construction cost growth spurring deterioration in affordability

“The real deal starts after you close the transaction,” Naemsch explained. “You need to make certain that builder clients get through the process by ensuring they have the right financing for their budget, draw structures, contingency, and, of course, an exit strategy.”

Despite complex and often difficult times in the current environment for brokers, those challenging conditions also present the opportunity for mortgage professionals to show their value to clients and potentially expand their book of business, according to Naemsch.

“[These are] tough times in the market and how you manage it can make the difference in developing your portfolio of builders,” he said. “With rate increases and market shifts, if you can ensure solid financing and assist your clients through these times, it will build significant loyalty and result in referrals.”

Also essential for brokers is knowing their lender and making sure they’re working with an organization that has the service, flexibility and loan features best fitted to the individual needs and preferences of each client.

“Work with lenders you know and trust,” Naemsch advised. “In construction, the best rate is not the be all and end all. Flexible draw structures, better loan to values, and lender capital are all major pieces to the business.”

 

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