By the end of the third quarter of 2018 it seems like the story of the year could already be written. A Slow spring market, rising mortgage rates, punishing cost increases, terrible mortgage policy where the wagging tail of Toronto determines the fate of the western Canadian dog, and a NAFTA and pipeline fiasco with a net of blame so wide that hardly anyone escapes its shame are 2019 lowlights.... where are the highlights? The desire for government change is palpable among my industry contacts, but little respite is on the horizon from the people in charge and the incredible damage they do.
How these societal conditions are impacting the inner city housing market is much more clear than it was during the optimism of late 2017. A fair bit of supply has come on the market and sales have slowed. Building material cost increases have been significantly higher than expected and many builders are feeling the squeeze of stale inventory and poor margin. I toured a $1.2M showhome that featured, much to my horror, basic carpeting upstairs and low end master bath fixtures. This stingy spec list is a reflection of cost increases elsewhere. Somehow I was able to put together a similar house with hardwood floors everywhere, nicer appliances and fixtures, and air conditioning and infloor heating operating for $400k less. I must be a building genius. Land sales have really slipped as well and are not likely to recover unless sentiment swings the other way, which, based on recent observation, it can quickly. Let’s hope the land sellers get a little market discipline too.
All of this sounds like it is a great time to buy a house by locating the nearest desperate home builder and making a lowball offer on an unsold show home. The problem with this strategy is it will be hard for a bankrupt builder to provide much after sale support. Any buyer who enters into this sort of arrangement should be extra careful their new house was built well or be prepared to be responsible for dealing with the consequences. Remember the false government security blanket of a mandated insurance program masquerading as a warranty will do little to deal with the imperfections in a newly built home.
2018-19 could be a hard time for builder survival and the intense competition should shake out the weaker players. I’m wishing this year would be over and we could celebrate New Year’s Day instead of thanksgiving!