New Home Sales…Falling

When looking at sales levels, this blog has prioritized its focus on the resale housing sector. Any given year, the resale sector reported by TREB makes up over two-thirds of all homes purchased in the GTA, so our focus is warranted. This post will turn our attention to the new home sales segment of the market, as the 2018 results were posted in February and they were historically bad.

According to the Building Industry and Land Development Association (BILD), the 2018 new home sales total for the GTA was the lowest in nearly 20 years. The reasons listed for this sales downturn were the stress test, rising interest rates and strong 2017 sales.

New home sales by yearSource: BILD – Altus Group, Six Housing Sense

2017 was a strong year for new home sales, though it was down from the peak new sales total in 2016. 2017 was also only 1,000 sales more than the average annual new sales total from 2014 to 2017, so it is challenging to think 2018 lost out on a considerable amount of sales to 2017.

The rising interest rates and stress test arguments likely influenced a reduction in sales; however, these factors also impacted the resale market. From 2017 to 2018 the total of resale home sales fell by 16%. In comparison, the new home sales total fell by 43%. Given that the mortgage stress tests and the rising interest rates had equal opportunity to affect both segments of the market, the discrepancy between the two sales drops would imply other factors must have been hitting the new homes market. Factors like the loss of investor buyers who were recorded as having made up nearly half of the new condos market in 2017 perhaps?

New homes by monthSource: BILD – Altus Group, Six Housing Sense

Looking at the sales totals by month, we see the poor performance experienced in 2018 was universal across the year. The sales totals from January 2019 do show a marginal increase compared to 2018; however, both sales totals were noticeably below all previous years.

new condo sales by monthSource: BILD – Altus, Six Housing Sense

The final graph shows the new condo sales since 2014. Illustrated most clearly from the graph is the strength of sales seen in 2017. Given that a CIBC report found that 47% of all new condo closings in 2017 were bought by investors, the 48% drop in total new condo sales from 2017 to 2018 may be best explained by the loss of new investors.

With endless calls to increase the housing supply, the new homes sector will continue to be an important segment of the market. However, the evidence would suggest the new homes market has become more about investment than housing. With sales dropping so drastically year-over-year, the 2018 totals may reflect the actual housing demand of the market and that investors have moved on.

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