At the halfway point of 2022, the GTA’s new construction market has experienced change, from sales to building costs. Photo by contentzilla via Adobe Stock
We’ve crossed the year’s halfway point and much has changed in the Greater Toronto Area’s new construction market.
From fast-rising interest rates to higher building costs, the new home market is different compared to 2021. Based on sales alone, the market has shifted, with new construction sales falling 56 per cent in June compared to the same month a year ago, according to recent reporting from the Building Industry and Land Development Association (BILD). As residents move back to the city, consumer interests in downtown life and their buying power are playing a role in the current market conditions.
Now entering the second half of 2022, here are some of the trends we’ve seen in the GTA new construction market so far and what may be to come. Mark Cohen, partner at TCS Marketing Systems, gave Livabl a mid-2022 market recap and insights on where things could be heading.
The first six months of 2022 have come and gone. What are some of the biggest trends you’ve taken note of during this time in the Greater Toronto Area new construction market? What insights are you hearing from developers and industry experts at this mid-year mark?
The year so far has seen tremendous fluctuations in the new construction market.
The market was red hot at the start of the year, but as the bank introduced interest rate hikes, we saw things cool down in a hurry. A lot of developers pushed launches as everyone wanted to see how things stabilized through the summer.
The other variable was construction costs — many developers looked to get a firmer grasp on the new costs associated with their projects which meant a slower summer market than usual. There has continued to be a conversation around affordability and debates about the rising development charges proposed by the City of Toronto, which all added to the softening of the market.
On a year-to-year basis, how is the GTA new construction market different from where it was this time in 2021? What has changed and stayed the same when we think about sales, prices, and consumer behaviour?
Mid-way through 2021 we were still in the midst of the pandemic. While sales centres went virtual, there was a lot of activity in the pre-construction market, with projects launching and selling out in weeks. Things are a bit different this year, and its more to do with uncertainty. Consumers are concerned about rising interest rates and their purchasing power, while developers are being more cautious with cost of construction and inflation in play.
Mark Cohen, partner at TCS Marketing Systems, says that the 2022 new home market is different from where it was a year ago. Image courtesy of TCS Marketing Systems.
In its last market report, the Building Industry and Land Development Association (BILD) stated that the GTA new construction market slowed in May as sales activity dropped below long-term averages that month. How would you describe the pace of the market during the first six months of 2022?
The pre-construction market was at its peak in the first quarter of this year and all signs pointed to a slowdown. We saw that finally starting to show in the [sales] numbers in May and that trend has continued through the summer.
There were some big project launches like Forma, but overall, there has been a slowdown in projects coming to market. The numbers have to make sense for the developer, and right now, we are seeing soft launches, slow rollouts, and different strategies to make sure the project is achieving the revenues it needs to get built.
Our team pushed out several launches to the fall, and I think that has been the case with many new projects. I expect to see the flurry of activity and market demand pick up as we head into Q3-2022.
Many COVID-19 restrictions have been lifted in Ontario. How has this impacted new construction consumers during the first half of the year regarding the type of product they are looking for and how they want to buy pre-construction homes? Are buyers still craving larger spaces outside the city core, work-from-home amenities, etc.?
The post-pandemic lifestyle looks very different from 2019. The work-from-home lifestyle or a hybrid version of it seems here to stay, which means buyers are looking to live where they want rather than where they work. These buyers are looking for more outdoor space, being part of a community, and having more indoor space that is flexible for their work needs.
We have seen a bigger softening of the market in the 905 area, one that got very hot during the pandemic. This shows us that people are returning to the city. Still, they want a multi-functional space, and developers are making sure to deliver unique amenities that are suited for these new lifestyles.
Interest rates started to increase in March, a move that has noticeably cooled the resale market. But, has this also translated into the new construction sector? If interest rates keep rising this year, what will this mean for the local new construction market?
There was definitely some hesitancy in the new construction market as interest rates began to climb. Buyer purchasing power was reduced, but there was still strong interest from investors. First-time homebuyers who may have been looking at pre-construction were faced with committing to a price with an uncertainty of where mortgage rates will be at occupancy. This factor alone pushed them more towards the resale market or to remain renting for a while more. That same rental market has been extremely competitive and attractive for investors.
The GTA new construction market saw some hesitancy as interest rates started to rise, according to Cohen. Photo by artemzavarzin via Adobe Stock
What are your predictions for the remainder of 2022? How will the marketplace evolve throughout the summer and into the busy fall season?
The pandemic feels like it is behind us, and the interest rates will be more or less set for the year. This sets things up for a busy fall new construction market, with product launches across the GTA and the Greater Golden Horseshoe Region.
Our team has several exciting projects lined up to launch in the fall ranging from a mid-rise in Etobicoke to a boutique building in Scarborough. Everyone who was playing the wait-and-see game is going to be ready to jump back in, and we should see year-over-year numbers that are close to what we saw in the fall of 2021.
