Homebuilding confidence wanes

When it comes to homebuilding, the days of ‘If you build it they will come’ are over. And that has significant repercussions for our local real estate market

Homebuilding confidence wanes homebuilding London Inc. Realty

THE HOUSING SHORTAGE may get worse before it gets better.

We are currently experiencing a “correction” and have been since the middle of March. Average house prices in London have tumbled from $820,000 to $650,000. The number of houses being sold has dropped by about 30 to 40 per cent from historical averages. Inventory of listed homes has grown dramatically, from about 200 at the beginning of the year, to about 2,000 now. 

So, it seems we have plenty of housing, at least in the London market. But that supply and balanced market my be fleeting. 

Economists believe we have a housing shortage that is unprecedented. The federal and provincial governments are determined to find ways to build more houses, doubling our historical output of the last decade. But at the same time as they plan to “incentivise” construction, there are significant barriers in the way.

Over the next year, the most daunting challenge may be builder confidence. In our market, builders enjoyed a strong but challenging ride for the past five years. It was quite simply a matter of build it and they will come.

“Builder confidence is gone just when the government wants the industry to go into overdrive. At the same time there are serious shortages to overcome for there to be expanded housing construction to be a possibility”

Locally, Toronto-area buyers entered our market in 2017 in earnest. The investor class decided real estate was the play and everyone wanted in. The pandemic increased the demand but enormously impacted the cost side of building, dramatically squeezing margins for builders who had sold homes at pre or early pandemic prices.

Builders now are suffering. Many, many buyers purchased housing in the last year with small deposits of $20,000 to $50,000 for houses ranging from $800,000 to $1,200,000. Now as those houses are nearing completion, similar resale homes can be found for 20 to 25 per cent less, representing a “correction” of as much as $300,000. 

Consequently, builders who financed those builds and completed them with record-breaking labour and material costs ― and tight margins ― now have those buyers simply walking away from their new home closings. Many of them can’t get their new home financed because they don’t appraise sufficiently to support the contracted purchase price.

In this environment, new homebuilders are reticent to take on additional risks. That means deposit requirements are going up significantly, and some builders are having a more difficult time securing financing for construction. The days of build it and they will come are over, so new projects are delayed and the supply of new housing for the next 18 months will be impacted negatively.

Thus, builder confidence is gone just when the government wants the industry to go into overdrive. At the same time there are serious shortages to overcome for there to be expanded housing construction to be a possibility. There isn’t enough zoned and serviced land. There aren’t enough planners and municipal staff to review plans, manage applications and provide timely permits. There aren’t enough engineers to prepare submittals. There aren’t enough labourers of any type to build the houses once approvals are secured. There aren’t enough materials to handle the current construction pace, let alone an enhanced one.

What does all this mean for the local real estate market? The numbers for August will be out later today. I predict (stepping out on a very unsteady limb here) they will show the market is nearing the bottom in terms of house values and unit sales. As buyers accept the fact the market has bottomed out, they will return, but over the next year we’ll find the new housing starts won’t support that returning demand. Resale homes will be affordable when compared to the few high-priced offerings from builders. Builder’s prices will come down more slowly, due to continued high costs, and their desire to support the valuations put on previous transactions that still have to close.

The “balanced market” we’re moving towards is wonderful for buyers and sellers, but it may be fleeting if we’re to believe the economists. International students, growing families and unprecedented immigration numbers will once again fuel our housing market, making supply tight once again. It may be prudent to make that move in the next three months, before a market shift occurs once again.

Market analysis provided by Marcus Plowright, Sales Representative, A Team London. Marcus can be reached at 519-872-8326 or [email protected].

Homebuilding confidence wanes homebuilding London Inc. Realty

London East

Low

Homebuilding confidence wanes homebuilding London Inc. Realty

Address: 61-2189 Dundas Street East
MLS number: 40259706
List price: $150,000
Days on market: 107
Size: 1 bedroom, 1 bathroom, 600 square feet
Listing agent: Karen Greasen, Broker, Re/Max Centre City Realty

High

Homebuilding confidence wanes homebuilding London Inc. Realty

Address: 1745 Kilally Road
MLS number: 40284410
List price: $3,500,000

Days on market: 67 
Size: 3 bedrooms, 4 bathrooms, 4,700 square feet
Listing agent: James Hudson Smith, Sales Representative, Sutton Group-Select Realty Inc. Brokerage

London North

Low

Homebuilding confidence wanes homebuilding London Inc. Realty

Address: 1007-600 Grenfell Drive
MLS number: XH4128621
List price: $349,000
Days on market: 20
Size: 1 bedroom, 1 bathroom, 700 square feet
Listing agent: Ail Verma Sales Representative, Re/Max Escarpmment Realty Inc.

High

Homebuilding confidence wanes homebuilding London Inc. Realty

Address: 40 Sir Robert Place
MLS number: 40266200
List price: $4,580,000
Days on market: 50
Size: 5 bedrooms, 4 bathrooms, 7,650 square feet
Listing agent: Kim Mullan, Broker, Sutton Group-Select Realty Inc. Brokerage

London South & West

Low

Homebuilding confidence wanes homebuilding London Inc. Realty

Address: 100-198 Springbank Drive
MLS number: 40255158
List price: $185,000
Days on market: 115
Size: 2 bedroom, 1 bathroom, 1,000 square feet
Listing agent: Karen Greason, Broker, RE’Max Centre City Realty Inc., Brokerage

High

Homebuilding confidence wanes homebuilding London Inc. Realty

Address: 1939 Kilgorman Way
MLS number: 40290600
List price: $3,098,000
Days on market: 70
Size: 5 bedrooms, 5 bathrooms, 5,107 square feet
Listing agent:Klaud Czeslawski, Sales Representative, Peak Professionals Realty Inc.


Disclaimer: London Inc. does not guarantee the accuracy of the statistical data on this page. The data does not represent the listings of any one agent or agency but represents the activity of the real estate community in the area. Any real estate agent’s ad appearing is separate from the statistical data provided, which is in no way a part of their advertisement.

Share via
Copy link
Powered by Social Snap