Housing prices generally fall during a crisis, as people refrain from big ticket purchases during times of uncertainty. The financial crisis that took place in 2008 showed that new house prices fell 3.1% year over year. During the first six months of the current pandemic, new home prices have risen as Canadians adjusted to the new reality of working and staying at home.
Gathering details from Statistics Canada, it has been reported that the New Housing Price Index tracks prices of new construction of homes such as singles, semis and townhouses or row houses and excludes apartments and condominiums. It does not include resale homes.
The prices for new houses were up 1.3% six months into the pandemic (between February to August 2020) in comparison to a 0.2% drop observed during the same period in 2019. Prices have risen in 23 of the 27 cities covered by the New Housing Price Index since the onset of the pandemic.
Ottawa remains Canada’s hottest housing market which reported the largest annual growth in the new house prices in February, which may have been partially attributable to the introduction of a provincial foreign buy tax geared towards cooling the Toronto and Vancouver housing markets. Six months into the pandemic, strong housing demand coupled with low supply persisted in Ottawa as house prices increased by 5.3% between February and August 2020.
Why are house prices increasing during the pandemic?
The global pandemic has led many Canadians to remain home more than usual over the past few months due to physical distancing measures. With people now spending more time at home, this has increased the demand for larger homes with additional space for a home office, remote learning or accommodating extended family members.
Furthermore, the increasing prevalence of working from home during the pandemic has made commuting less of a deciding factor when choosing where to purchase a residential property. This has amplified the trend of buyer interest in lower priced suburban areas and in cities within community distance of large urban centres when needed. As a result, new housing prices have risen in suburban areas since the onset of the pandemic.
In some markets, prices were rising even prior to the pandemic due to the limited supply available for sale. Higher construction costs due to the new safety protocols and rising building material prices, coupled with the current ongoing record-low interest rates, all contributed to the rise in new house prices over the last few months. Homebuilders report that records high lumber prices this year will likely add an extra $5000 to $10,000 to the cost of a single-family house.