Why Are Housing Starts Down So Much In Windsor - Essex in 2019?

A lot of economists see statistics such as new housing starts (basically building permits to construct new residential housing) as a leading indicator for the economy. CMHC reported in their March 2019 Housing Start Data, that the Windsor-Essex region’s housing starts had fallen 23% year over year. Is that cause for concern?  Today, we are going to discuss some of the factors we think that are leading to this slowdown and what else you need to know.

Reason 1 - Shortage of Building Lots

I know this seems very obvious but this really is an issue. I personally know people who would love to build but can’t find a building lot for sale. A lot of subdivisions are nearing completion and the pipeline to replace them is pretty slim. Basically, not as much supply of building lots compared to last year.

Reason 2 - Bringing on Additional Supply of Building Lots is Difficult

We have so much land in Windsor they say, why don’t you just develop it? While Windsor isn’t the most dense city, getting a piece of land to a serviced, shovel ready project isn’t an easy task.  If you have to go through the municipal rezoning process that can take 6 months easily and can cost tens of thousands of dollars in some cases. There are also significant area of red tape to battle through including: biology studies, archeological studies, utility servicing studies, traffic studies, noise studies, etc. This can take years and lots of capital, with no guarantee of success, or can make a project uneconomical. This all leads to decreased supply long term and is a major issue for municipalities all over the province with Windsor being no exception.

Reason 3 - New Home Prices are Getting Unaffordable

Some of these construction costs are driving the pricing of new homes to price points that are no longer affordable for the average person. It's commonplace to see $700-800k price tags on the average new build. The market has been doing extremely well locally but sticker shock  has to have some effect on demand eventually.

Reason 4 - Labour Shortage Affecting Trades Pricing

Tying into point 3, part of the reason for the large price tags on some of these new builds are the escalating pricing from the trades.  Electricians, plumbers, bricklayers, etc are in high demand and able to command premium pricing in today’s market. This trickles down to the end buyer.  Hard to see this changing anytime soon.

Reason 5 - Its Taking Longer to Build Homes

Essentially the labour shortage also means slower build times.  Back 5 years ago it wasn’t uncommon to build a house in 90 days. Now it's not uncommon to see 180+ days. This statistically is taking units out of the data.

Bonus Point - What Does All This Mean for the Resale Market?

This decrease in new home sales activity is adding demand to the resale market. Taking some of the buyers out of the new home market for the above reasons is directing them to the resale market. And the resale market already has a supply-demand imbalance. This increased demand could explain some of the crazy resale statistics to start 2019.

Thats how we are seeing the new home starts data. What are you seeing out there?

Real Estate Insider: March 2019 News Report

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2018 Year In Review: Local Real Estate Market Observations

Happy holiday season, Gang! Can you believe Santa is coming to town in less than 2 weeks? With the end of 2018 on the horizon, we wanted to take the opportunity to review some of the things we learned this year about our local (Windsor-Essex) real estate market. Here are some items of note that stood out to us.

Listings Are Still Down.

Per WECAR (Windsor-Essex County Association of Realtors), through the first 11 months of the year, listings were down from 2017 by 6% year to date. Everyone thought inventory was super low last year and that was one of the main reasons for the bidding wars.  Well, inventory got even lower this year. The supply and demand balance has stayed with the sellers this year.

Average Sale Price Is Up, Again.

Also through those same 11 months of the year as per WECAR, the average sale price rose 14% versus 2017. I don’t think this strayed much from our forecast. Having listings down again, upward pressure was put on sale prices. This is a healthy stat that should put us up with some of the best performing markets in Canada.

Unit Sales Are Down Quite A Bit

In that same timespan, unit sales were down 11% versus 2017. This isn't a good stat for realtors! Listings being down explains part of it but clearly there is less turnover. A partial explanation could be that sellers have increased their pricing expectations and these over-priced listings are sitting on the market and not resulting in transactions.

Total Volume of Sales Were Up Modestly

Sales volume rose 2% versus 2017 through the first 11 months of 2018 per WECAR. This stat is pretty easy to figure out when you combine sales prices being up 14%, combined with unit sales being down 11%. What also affects this stat is the fact that more and more of the sales seem to be in higher priced categories bringing up the averages.

Increased Interest Rates Haven’t Affected the Market—Yet

With the Bank of Canada's increased interest rates three times this year, higher interest rates are making things less affordable in housing. This hasn’t translated into much decreased demand yet, but should interest rates go up a few more times in 2019, this could start to drive some people out of market.

Investor Demand Has Plateaued

The fever pitch of real estate investment demand seems to have levelled off. We had some listings this year that surprised us a little on the market reaction. The cap rate demanded by sellers and what buyers will accept seem to be at a standstill in 2018. Perhaps cap rates will increase a little next year and part of that may be due to the increasing interest rates mentioned above.

There Is A Serious Housing Shortage in the Rental Market

The vacancy rate in 2017 was down to 2.3% locally. The 2018 report still hasn’t been released but is looking like it will be less than 2%. We believe this stat is somewhat inflated; if you look around for vacancies for any decent buildings, they are essentially 0% with waiting lists. There are also long waiting lists for socially assisted housing. Combining this low rental supply with the booming housing market that is driving more people into the rental market and the situation is really dire for tenants. Something needs to be done about this at the governmental level as it seems to be getting more tight every year and market based solutions don’t look to be feasible.

Those are some of our 2018 real estate market observations. What are yours?  

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2016 Year End Real Estate & Related Observations

 As the holidays draw closer we are going to do a few posts wrapping up the year.  And what a year it has been for our real estate market and many other markets in Canada and the US.  Today we are going to discuss some observations we’ve made throughout the year.

The Year of Multiple Offers

Multiple offers seemed to be a way of life this year.  Bidding wars were everywhere, in all parts of town and all price ranges.  This even spread to the commercial market as some retail, multifamily, and industrial buildings had multiple offers.

New Construction Is Back In A Big Way

New construction was a bit of a tough business since the recession of 2008 in our market.  That changed in a big way as sales of new construction boomed all over the area.  Clearly there was some pent up demand from the last several years and that translated into huge numbers.

The Local Economy Is Finally A Tailwind

We deal with lots of business owners, and so many of them talk about having way more business than they can handle.  This applies across all industries.  The local unemployment rate has plummeted from being one of the worst in Canada to below average.  This bodes well for a continued buoyant, local real estate market.

We Need to Build More Condos

There are not enough condos out there to meet demand.  With an aging demographic, mixed with the  acceptance of condo living by Millennials, the once stagnant demand for condos locally is long gone.  We expect to see more new condos being constructed in the next few years with brisk demand to meet them.

Downtown Is Still A Sore Spot

The downtown hasn’t really been able ride the coattails of the improvements in the local economy and real estate market as much as it was hoped for.  We still need more people living down there to change the demographics to support more retail and attractions that people like to speak about.  Hopefully the University opening in the near future will be a catalyst, but time will tell.

Those are some of our observations from 2016.  What were yours?