According to Statistics Canada, nationally, prices were unchanged in December following three months of declines. New house prices were unchanged in 19 of the 27 census metropolitan areas (CMAs) surveyed, down in 6 and up in the remaining 2.
High mortgage rates continued to impact the housing market in December as the Bank of Canada increased the policy interest rate again at the beginning of the month, bringing it to 4.25 percent.
In December, new home prices decreased the most in Regina (-0.4 percent) month over month. Similar weakness was found in the resale market, with the Saskatchewan Realtors Association noting that detached home prices were down 1.1 percent for the month.
The new home market saw prices drop in Winnipeg, Saskatoon, London, Kelowna (all -0.3 percent) and Edmonton (-0.2 percent), with builders noting deteriorating market conditions as the reason for the decrease.
Price increases were reported in Montréal (+0.3 percent) and Calgary (+0.1 percent) in December, as high interest rates were offset by increased demand and construction costs, as reported by builders.
Prices for new homes grew quickly at the start of 2022, increasing 2.5 percent in the first quarter of 2022 compared with the fourth quarter of 2021, as interest rates were at an all-time low. Prices continued to rise in the second quarter of 2022 (+1.9 percent) compared with the first quarter, as the cost of building a single-detached house (+5.8 percent) and townhouse (+5.7 percent) grew.
Interest rates continued to grow throughout the year, and, by year's end, the policy rate was 4.25 percent, compared with 0.25 percent at the beginning of 2022. This increase made borrowing more expensive, curbing demand for homes and leading to a decline of 0.4 percent in new home prices from July to December.
As for an outlook for 2023, Statistics Canada said high mortgage rates have resulted in reduced home sales and increased inventory, with the Canadian Real Estate Association reporting a 25.2 percent decline in national residential sales in 2022 compared with 2021, thus decreasing home prices. The Bank of Canada has noted that the policy interest rate may need to rise further to bring supply and demand back into balance and return inflation to target. As well, since their high in March 2022, softwood lumber prices have fallen rapidly, by 57.3 percent until December 2022.
This decrease in lumber prices, along with elevated mortgage rates (plus the risk of further increases in 2023), should continue to cool new house prices, at least during the first half of 2023. As mortgage rates stabilize and uncertainty in the market calms, housing demand and growth in prices should edge up in the latter half of 2023. This, along with other factors such as increased immigration targets and continued interprovincial migration, especially in the hottest markets with a limited supply of new homes, could lead to price increases in the new home segment.