Construction Costs Will Drop, Fewest Sales Since 2009, 2023 Canadian Real Estate Market

hello again John Flynn here from Flynn real estate here once again to give you my professional and honest opinion for the 2023 Canadian housing market this week I'm going to talk about new home prices and where it may go this year some statistics before that and just one thing to start off this video from the financial times recession will hit a third of the world this year IMF Chief warns so of course this article the links in the description but they're talking about the recession hitting not just I say North America it's going to hit Europe U.S China and a bunch of the big countries do I believe this mainstream media no I think it's going to be worse but anyway we'll see where it goes uh next on to some statistics from Ontario it's so my usual area about 20 boards surrounding GTA and this is for December just some preliminary stats for December because the rest of them are not out yet but let's take a look at them so first of all here's the number of sales in these 20 boards now if you look we're at the lowest point since 2009 I keep saying in many videos like the sales can't get much lower I've been wrong they keep going lower and lower looking at this chart here we had lower sales in December than we did in the pandemic uh April 2020 when the pandemic first started I should say and of course you have to go all the way back until January or so of 2009 to get sales this low so this is pretty disturbing knowing that our population since that time has increased by millions of people right we should actually have more sales for our low point in the sales but the lowest since 2009 so that's a pretty significant number and now looking at our new listings new listings are very low also obviously every winter you can see they're always at this low point so nothing abnormal it's just a winter low for new listings months of Supply is also still low it's at 2.2 months right now very low for this area but again we have low sales so it's kind of a very interesting Dynamic going on with those another low point is the average percent of last original list price and again on this one I think we're at 94.6 I believe it was you have to go back until 20 2012 to get the same levels or low levels that we have now and lastly this week is our average price it's now at 730 000. it dropped another 1.6 percent month over month from November to December that's twelve thousand dollars so you're looking at three thousand dollars a week home prices or the average home price is declining at this point it's pretty significant again 1.6 percent a month doesn't seem dramatic but if you had 1.6 every month you can add that up and you're going to have some pretty good or Hefty yearly declines and it's 25.8 almost 26 percent from the peak our prices have dropped in this area or 253 000. yeah so this week I want to talk about new home prices because I got a lot of feedback and a lot of comments saying you know it costs so much to build a home home it's kind of like a precedent or a benchmark price where they're not going to get any cheaper and they can't get cheaper so ultimately resale homes can only go down so much so my argument is new home prices can get cheaper and have got cheaper in the past and I want to show you some kind of Statistics to support that theory but first of all I want to look at some recent listings and compare some new home prices asking prices to some resale home prices just to show you the disparity between the two now all this information that I'm going to show you is public information and none of it is from my internal realtor website because I'm not allowed to disclose certain information so everything I've got here and there are some sale prices they are readily available for the public to get and of course this is where I've got them and the information I'll be sharing so I'm not going to obviously get dinged or in trouble for my real estate board for providing sensitive and private information outside of what I'm allowed to so the first home I want to look at is from a new neighborhood it's actually Mountain viewable leave as a builder on this one this is in the Splendor neighborhood in Niagara Falls and we have a just over 2 000 square foot new home starting at a million and sixty five thousand dollars it's a three bedroom two and a half bath and it's on a Forty Foot Loft two-story nothing special this is not a high-end home this is just a regular home now I want to compare it to something similar that's on the market this home is just a few years old it's listed at 7.99 it's just a couple of kilometers from the first house the new build I showed you in a very comparable neighborhood very comparable finishes four bedrooms four bathrooms just over two thousand square feet so we're going from a million and sixty five thousand dollars to a two three-year-old home or four-year-old home it's only a few years old for eight hundred thousand dollars plus you can maybe be able to negotiate off this price too uh I don't know if the sellers are firm on this but it just came on the market 11 days ago so I guess my point is why would somebody buy a brand new home in a very similar neighborhood when down the street you can get a resale home that's a few years old for three hundred thousand dollars less uh let's look at some more here's a 1600 square foot townhouse two-story townhouse on a 20-foot lot three bedrooms and it is from the same Builder starting at eight hundred and forty three thousand dollars and now looking at a resale home this one is actually brand new also and it's 729 000 now this home hasn't sold so of course we can't say that this was the sale price but again substantially cheaper than the brand new one now this has a two-car garage I believe the other one only hit a one-car garage same square footage actually this one's a little bit bigger and it's a three bedroom three bathroom home so on the resale Market there's substantial savings for buying a few month old home or a few year old home in very similar neighborhoods uh right next door actually this neighborhood is right next door to the other townhouse I just showed the brand new one if you want to go six or seven years old here's another one same square footage literally right beside the neighborhood of the new neighborhood that's 842 000 just sold for 653 000 yes you might need to put some paint on the walls but again it is a six-year-old or seven-year-old house and same square footage right next door moving on to another neighborhood in the Niagara region this is the last neighborhood a brand new house just over 2 000 square feet four bedrooms two baths or two and a half baths starting at 9.90 Plus on this Builder you're gonna need at least fifty thousand dollars in upgrades but whatever you're a million bucks plus for a brand new 2 000 square foot house and in the same neighborhood you get just over 2 000 square foot house plus a finished basement uh if Kate has three bedrooms but it has the one in the basement four bathrooms two car garage uh it's probably three four years old this house at most 825 000 so it's two hundred thousand dollar savings by the time you upgrade the new one um same neighborhood so it's pretty tough sells for these new Builders right now knowing they're competing with resale homes that are only a year or two old and they're selling for two three hundred thousand dollars less so when we're looking at building a house of course building prices have skyrocketed right No One's Gonna argue that point but will they come down I say yes they'll come down there's land prices there's commodity prices that you know obviously construction materials to build homes wood copper Etc so I want to look at kind of what where these prices have gone and where I think they're going to go first I'd like to start with the Niagara region and land prices so here is a 10-year chart for land prices and you can see from 2021 to 2022 they've gone up 34 percent and this is the median price I'm going to look at average and median so they went from around 85 000 in 2015 to 2016 to like 325 000 or so 34 percent or four times a 4X increase in in sale price so all of this land is less than half an acre I wanted to keep things less than half an acre like a regular lot you would build a house on this is the same data in the Niagara region but it's looking at the average sale price this time the average sale price in one year went up 39 from 2021 to 2022 again that's a four times increase 20 from the 2015-2016 period so land has skyrocketed I think we're in for a good reset on land but let's compare that to house prices from the same area so in the Niagara region residential house prices or residential unit prices went up 10.5 percent from the average of 2021 to 2022 and a 2.5 times increase from 2015 to 2016. so you can see that there's been a big premium on vacant land which is changing now because Builders will not be able to make the money they have been many of them won't be able to make a profit from these smaller land purchases that they've done or the smaller Builders I should say and of course the big Builders their land is usually not included in this because they get them directly from developers developers don't sell land usually around here to smaller private individuals they're all reserved for the builders so of course let's talk about construction costs now Lumber went from around 400 pre-pandemic for a thousand board feet of lumber to over 1600 US Dollars four times it went up now that has come back to pre-pandemic levels and looking at this chart here you'll see it's right now it's at 382 which is kind of the norm for the last five to ten years or so and you can compare it to 2017 prices 2019 prices to 2020 prices when we expand the chart further we can see we stretch all the way back to 2013. so again Lumber has spiked and it has come down the demand has subsided and it's back to reasonable levels now so there's no premium on lumber at this point copper copper was another big ticket item used in wiring it used to be used in plumbing they use plastic now but anyway Copper's obviously affects the price of homes and copper is kind of at a midpoint right now it's not super high it's not super low but it has come down from the peak and you can see on the long term chart we're probably a little bit above average but it's nothing excessive one thing I want to point out you'll see after 2008 the price of copper dropped significantly of course we're in a recession Supply demand there's no demand it drops just like it did in 2016 it dropped again there was less demand again these are Commodities Supply demand recessions affect them next I want to look at gypsum it's in drywall and sheet Rock and whatnot big part of building homes and you'll see this is at an all-time high right now it's gonna drop just like it did in 2006 2007 there it dropped it actually dropped before the financial crisis then it dropped in 2000 after the.com bubble so it is a commodity it goes up and down recession comes it drops so right now we're at a high but I see gypsum dropping the price significantly dropping back to a more reasonable pre-pandemic level so ultimately making houses more affordable to build and buy another thing that is also at its peak right now is cement or concrete actually my sister she built a couple of houses or a few houses you know she told me she paid 40 000 for her foundation about three years ago and on a similar size house now she's spending a hundred thousand on the foundation so cement not just for homes but all the pools people installed there is a big Global Demand right now for cement which again will subside once we're in this third worlds in the global recession and whatnot it will come down reducing the costs of building homes you can see here after 2008 it did subside a bit but we're going to come back to more reasonable levels I believe pre-pandemic probably 20 20 levels maybe 2019 levels who have all these things the Commodities or the materials used to build homes the land uh some of them you've seen have started to subside or have subsided from the last two years we're going to see the rest just like land land's not going to increase during recession it will significantly come down in price just like home prices will and which will make the overall cost of building a house less Builders have based their builds off of these inflated prices of course they have to get worked into the equation that takes time so I think within 12 months from now you'll see most of these prices back to normal levels and the price of construction will beg back to a more normal level instead of an inflated level and the last chart I want to look at is the Canada's new home price index I've shown this before in a previous video you can see in 1990 it dropped what 9.9 percent almost 10 percent in one year or 11.1 percent in the six years following the peak in 2008 a year when Canada got off very easy in the global recession or in the Great Recession or whatever it was called we dropped only 3.5 percent on this index now this is an index this is not average prices of course indexes are lagging indicators and not average prices so just because the index dropped 10 percent doesn't mean the prices dropped 10 percent it's usually more prices probably dropped closer to double that 20 percent for approximately three months now our new home price index has been declining and we're going to see it decline throughout 2023 at what rate who knows but knowing that Lumber has already come down vacant land will start to come down on these other Commodities when recession hits they drop this home price will drop even further and it'll be interesting to see at what level will it settle out I'm guessing you're going to be 2019 to 2020 just like my minimum predictions on the housing market could be further but I think we're going to at least see those levels to return to those years so yeah that's what I want to say about new home prices when people say you know it costs so much to build a new home well it's not true construction costs do fluctuate they fluctuated to the high side now you're going to see them decline as always let me know what you think in the comments and until next week I'll see you then

Channel: Jon Flynn Broker of Record, Flynn Real Estate Inc.

Views: 8,991

Keywords: 2023, canadian, canada, real, estate, market, new, homes, builders, prices, old, year, Jon, flynn, broker, statistics, recession, copper, land, vacant, commodities, gypsum, cement, concrete, sales, average, median, niagara, region, Ontario, resale

Id: LTLDXy3OimI

Length: 14min 27sec (867 seconds)

Published: Tue Jan 03 2023