According to Statistics Canada, in December, new home prices for Canada grew (+0.2 percent) at their slowest pace since June 2020. Nationally, new home prices rose 11.6 percent year over year in December.
Prices were up in 16 of the 27 census metropolitan areas (CMAs) surveyed, unchanged in 10 and down in 1 from November to December.
Nationally, new home prices were up 10.3 percent in 2021 compared with 2020 (+2.1 percent)—the largest annual increase since 1989. Prices for new homes grew at a faster pace from January to June 2021 (+7.1 percent) compared with the second half of the year (+3.1 percent).
As the housing market continued to overheat through 2021, housing supply continued to shrink throughout the year in most of the 27 CMAs surveyed. According to the CREA, months of inventory were at 1.6 at the end of December, significantly lower than the long-term average of more than five months, and the lowest level ever recorded.
In January and February 2021, skyrocketing lumber prices broke records as a result of COVID-19-related supply chain issues. Home building and renovation projects, in addition to increased demand from across the border, led to shortages of this construction material domestically. The effects on new home prices from this were two-fold. In the second quarter of 2021, the cost of building a single-detached house grew by 23.9 percent, partly as a result of the rise in prices of lumber. Additionally, builders struggling to secure building supplies released fewer lots at the same time, which in turn reduced the available supply of new homes, further pushing up prices.
As for an outlook on 2022, the Bank of Canada has "committed to holding the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2 percent inflation target is sustainably achieved. In the Bank's October projection, this happens sometime in the middle quarters of 2022." As interest rates have yet to move up, it is expected that new home prices will continue to rise in the first half of 2022, and possibly throughout the year, as buyers attempt to secure lower interest mortgages before the Bank of Canada announces rate increases. Since mortgage interest rates are currently at historically low levels and Canadians gathered a record amount of savings during the pandemic, the potentially upcoming rate increases may still not dampen the buoyant housing market in the near future.
According to Statistics Canada, the shortage of housing supply will continue to be felt in the housing market as it will take time for the builders to bounce back to a pace that will allow a balanced supply and demand. This will continue to put upward pressure on prices until inventory can be replenished. As well, building construction materials will continue contributing to the rise of new home prices in the short term, as supply chains continue to struggle with backlogs spurred by the COVID-19 pandemic.