Thursday, August 11, 2005

New-home prices rocket

New-home prices rocket
Costs in Winnipeg rise at pace that's triple the national average

Thu Aug 11 2005

By Murray McNeill, from the Winnipeg Free Press.

WINNIPEG'S rising new-home prices broke from a canter to an all-out gallop in June, rising three times faster than the Canadian average.
New figures released yesterday by Statistics Canada show the cost of a new home in Winnipeg jumped 3.0 per cent from May to June of this year, compared to only 0.8 per cent for the country as a whole.

Gerry Trottier of Southwynn Homes Ltd. says rising labour and material costs have played a part in soaring new-home prices.

That meant Winnipeg homebuyers had to dish out $206,000 for a new home that was selling for $200,000 just a month earlier. And at the higher end of the market, a new home that was selling for $500,000 in May would have cost them an extra $15,000 in June.

On a year-over-year basis, where Winnipeg once again had the highest increase of the 21 urban centres included in the Statistics Canada survey, the price hike was even bigger, at 6.9 per cent.

Using the same examples, that meant a new home that was priced at $200,000 in June of last year would have cost $13,800 more in June of this year, while a $500,000 model would have set a buyer back an extra $34,500.

Randy Sterns, a senior analyst with Statistics Canada's prices division, said while June's 3.0 per cent increase wasn't the biggest month-over-month gain Winnipeg has seen since the local housing boom began about three years ago, "it's certainly one of the biggest in a while," he added. The soaring price of new homes mirrors what's been happening in the resale-homes market in Winnipeg, where average selling prices have been escalating at a double-digit pace for each of the past three years.

In the case of resale homes, prices are being driven up by a shortage of new listings and a variety of factors that have helped create a strong demand for housing. That includes historically low interest rates, strong consumer confidence, and healthy employment and population growth.

On the new-home side, it's strong demand coupled with rising costs for labour, building materials and land. And opinions seem to be divided on which of those factors is having the biggest inflationary impact.

According to Garth Steek, president of the Manitoba Home Builders Association, it's the skyrocketing price of land.

"Neither labour nor materials are the back-breaker here," Steek said in an interview, adding that in most cases, they've only been increasing at about the rate of inflation (less than two per cent). "It is the price of land that is taking this out of sight."

He estimated land costs in Winnipeg have jumped 30 to 50 per cent in the past year. That means a standard 40-foot-wide lot that cost $40,000 a year ago costs about $52,000 today, while a 50-foot lot that was $50,000 last year is $75,000 this year, he added. "I think it really underscores exactly what the MHBA has been saying for the past year -- there is a severe shortage of serviced lots in Winnipeg," he said. "That's what's driving up new home prices."

However, two custom home builders in the city -- Gerry Trottier of Southwynn Homes Ltd. and Steve Maric, of Maric Construction Ltd. -- said rising labour and material costs have also had a significant impact on prices.

"I think 80 per cent of our increase has been labour," Maric said in an interview. "It's supply and demand."

He said the housing boom here and elsewhere in Canada has created a big demand for skilled tradespeople such as carpenters, drywallers and cement applicators. That's allowed the tradespeople to charge more for their services, he added, and most builders have no choice but to pay the higher rates.

Because of that, plus the rising prices for land and building materials, Maric said a house his firm could build for $600,000 last year is costing between $670,000 and $700,000 this year.

Trottier said the cost of building materials such as asphalt shingles, PVC windows, drywall and insulation also have increased from four to 10 per cent since March of this year.

As well, some suppliers have started charging a delivery fee to cover the rising cost of gasoline, he added. He said while it's not a huge amount, it still adds to the cost of a new home.

Trottier said he's had a couple of prospective buyers who got cold feet after the price of a new home they were planning to have built for them jumped from $15,000 to $20,000 between last December and this past April. But the vast majority of them -- his firm builds between eight and 12 high-end homes per year -- have proceeded with their purchases because they figure prices will only get higher the longer they wait, he added.

Maric and John Daniels, vice-president of Winnipeg's largest homebuilder, The Qualico Group, agreed that rising prices don't seem to have significantly weakened the demand for new homes. "People are still buying," Daniels noted.

He and Steek said local developers and City of Winnipeg officials are working hard to try and bring more serviced lots on stream later this year and early next year.

And hopefully by next fall, some of the lots in the massive new Waverley West housing development in southwest Winnipeg also will be ready to come onto the market, they added.

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