New home prices to stay strong this fall despite pandemic uncertainty

Since late March, Canada’s real estate industry has seen extreme lows and highs in the span of just a few months.

Now, as the market prepares to enter another typically busy season, it’s difficult to pinpoint what new construction home developers, buyers and investors should be expecting from the fall.

“I think there’s still a lot of uncertainty going into the fall, and I think [residential] developers will be watching to see what’s happening before they necessarily put the foot on the gas pedal,” said Ralph Fox, broker of record and managing partner at Fox Marin Associates.

As the COVID-19 pandemic picked up steam in the late winter and spring months, the housing market and global economy was hurled into rough waters. Homebuyers paused their purchasing plans while many home builders chose to postpone their launches until later in the year.

Despite the turmoil, there have been a handful of pre-construction launch success stories — both Fox and Ben Myers, president and owner of Bullpen Research & Consulting Inc, point to 28 Eastern in Toronto as a case study, which kicked off pre-sales earlier this year.

Myers noted that some developers that watched these pandemic launch successes initially ramped up their advertising, but after consulting with their brokers, are still prepared to pull back at the last minute if their product fails to generate sufficient interest. Overall, Myers said that we could see an average fall performance.

“I still think it’s in flux. Most developers have not launched a COVID project so maybe they’re not used to non-face-to-face and all-virtual, and it may be a little bit new for them,” he explained. “So we’ll see. I think it’s hard to tell, but I don’t think it’s going to be anywhere near the fall that we experienced last year or in 2018.”

While developers may have lost some time due to lockdown-induced delays, Fox and Myers said that new construction pricing isn’t expected to change much. Myers pointed out that investors are likely to be more conservative and price-sensitive with their purchases, while developers can’t be expected to afford to push pricing. Fox said that buyers and investors may see developers roll out other incentives instead, such as more flexible deposit structures.

Home offices, outdoor space and the ability to safely socially distance have been reflected in the purchasing decisions of recent resale buyers, many of whom are now migrating outside of the city. In preconstruction, some of these purchasing trends may carry over — Fox estimated that investors will seek out units with balconies and place higher value on smaller buildings, while Myers sees GTA investors starting to venture outside of downtown Toronto in search of better deals.

“I think it is impacting where investors are going to look,” said Myers. “Maybe they’re going to look for value in other places and maybe they see that price appreciation may be higher in what we would have called B and even C locations in the past.”

While the impacts of the pandemic will reverberate for months to come, Fox explained that investors are trying to project what the world will be like a few years from now when they close on their new construction property.

“I think investors typically think long-term, and I think most of the investors who are looking at making these types of investments are trying to think of what life will be like and what the demand will be like in three, four, five, six years,” said Fox.

“But I do think there does seem to be a consensus in the real estate investment world that this whole COVID situation, as unfortunate as it is, won’t last forever,” he added.