As a leading Sales Operating System for new home developments across Canada, AVESDO has a deep understanding of market trends. We empower our clients with insights from processing tens of thousands of new home sales transactions annually. Our platform currently hosts over 400 projects for more than 200 developer clients, comprising more than 8,000 units available for sale. Moving through Q1 2023, we have analyzed our data to present an accurate overview of the current state of the market.
Despite challenging conditions, we believe it’s essential to provide transparency and clarity to help you make informed decisions. Our analysis shows that sales, prices, and supply have decreased. However: the devil is in the details; we’ve gone through the data to bring you some specific insights.
It’s no surprise to see sales were down. Specifically, sales through our system in Q1 2023 were 61% of Q1 2022, and only 55% of Q1 2021. When we talk with our clients working the floor, it’s evident there is a real change in sentiment driven by the current economy, and a +4% increase in interest rates from the peak. But what else can we learn from the data?
In order to have sales, you must have supply and absorption. We’ll tackle supply in a minute, but first, let’s analyze absorptions to understand the level of market demand.
Through Q1, absorptions were a tale of two coasts, and were even more granular neighbourhood to neighbourhood. In Greater Vancouver, the absorption numbers were down from peak intensity, but were pretty consistent on all-time averages; projects absorbed 45% of their inventory within 30 days of their launch, on average. These numbers vary dramatically across neighbourhoods, and by product type and price, but typically show the resilience and stability of this market.
The Greater Toronto Area was a dramatically different story, with some projects achieving 30-day absorption rates of <5%, skewing the Q1 launch average well below standard.
Digging deeper, there appears to be a number of reasons for this. For starters, there weren’t many launches in Q1 in either market to compare, so big successes or failures swung averages dramatically. That being said – and recall we’ll be diving into supply shortly – after a full analysis of every launch, and with 20+ years of personal experience informing my gut feel, there did appear to be a meaningful difference in BC’s versus Ontario’s presale market paces in Q1, with Toronto not showing the same resiliency of its west coast counterpart.
It should be noted that it’s likely the location, prices, or product types of Ontario’s launches did not help their cause, while BC’s projects boasted more favourable conditions. It’s important to clarify Ontario project sales have not stopped, but just continue to absorb slowly on average. In the last few weeks, we have seen a significant increase in absorption, so I wouldn’t count the GTA out just yet.
Before getting to supply, I should note that we did see a small increase over both 2021 and 2022 in the number of sales occurring within projects launched the year prior. Meaning, older inventory from projects that launched as far back as 2017, with the majority of these past sales from 2022 projects. This speaks to the lack of new supply pushed into the market, and suggests demand was potentially stronger for products or prices that the market hasn’t been able to introduce so far this year.
Well, I may have already stolen my own thunder here: surprise, supply was way down. Q1 saw half as many project launches through our system as there were in Q1 2022, and just 57% of 2021. There were a few large tower launches, but generally, supply by unit number was down similarly. I note these are pretty similar statistics to what sales volumes were, showing the industry’s incredible ability to match supply with demand.
As we described in the fall, we’ve watched developers control supply for many months now, holding back thousands of units across dozens of projects. Q1 was no different, and the general sentiment was that everyone stared at each other, waiting for someone else to launch in order to prove the market.
Today, we can see more than 7,000 units with confirmed launch dates, and only 600+ still pending. These dates could continue to slip, but having an actual date is a big change from even a few months ago, and our onboarding schedule is far more green than red – which it has not been for almost a year. If April is an indication of what’s to come, and if everything goes as planned, our clients will launch more projects through our system in the month of April than what was released through all of Q1.
We’ll finish by discussing what everyone wants to know: are prices up or down? In an undramatic fashion, I regret to inform the doom and gloom TikTokers that, although the average price of homes sold through our system are down from the peak in Q1 2022, on average, 2023 prices have been 1% higher than Q1 2021 prices. This is just a continuation of what the data showed us last October when we published that “YoY prices are neutral in most markets with the gains from Q3 2021-Q1 2022 all but erased.”
You don’t have to be an expert to see that although sales are down, they remain steady. And although demand is down, supply has been equally constrained. Plus, if you factor in historically high immigration and population growth, and construction prices that have remained high, we are still convinced of our position that prices for new homes are unlikely to go down any further. In fact, they’re more likely to rise, if these upcoming launches produce the successful sales pace expected.
With a robust spring launch schedule on the horizon, another rate hold from the Bank of Canada this month, declining inflation numbers, and ever-increasing supply needed to meet population requirements, we are confident the new home market has started to rally — and we will see sales and inventory increase through the spring market.
This article is authored by Ben Smith, President of AVESDO: a Canadian software company harnessing the power of data to help real estate professionals make better, faster, and more informed sales decisions.