New Housing Price Index, December 2020

Released: 2021-01-21

The growth in new home prices slowed for the third consecutive month, rising 0.3% in December compared with November. Despite the recent slowdown, new home prices were up 4.6% year over year in December.

This article includes monthly analysis as well as a review of changes in new housing prices over the past year. It will also shed some light on why housing prices continued to rise throughout the year, despite the pandemic.

Chart 1 
New Housing Price Index

New Housing Price Index, monthly change

New home prices rose in 17 of the 27 census metropolitan areas (CMAs) surveyed in December, with prices in Oshawa (+3.1%) growing at the fastest pace. Builders in Oshawa tied the increase to strong market conditions over the past months. Employment data also supported the demand for housing in the city, as Oshawa led all CMAs in employment growth in December (+3.2% year over year). General Motors also recently announced that an assembly plant will reopen in Oshawa, which is expected to create 2,300 new jobs. The city is also a more affordable option for home buyers compared with nearby Toronto (60 kilometres away). According to the latest national population estimates, the Oshawa CMA posted the fastest population growth (+2.1%) from July 2019 to July 2020.

New home prices edged down 0.2% in Edmonton, driven by lower negotiated selling prices. This CMA had the only monthly decline in December.

New housing market: The year 2020 in review

Nationally, new housing prices were up 2.1% in 2020 compared with 2019, though they had edged down 0.1% from 2018 to 2019.

The year started with prices up 0.7% from January to March at the national level. However, at the onset of the pandemic—as strict public health measures came into effect—the growth in new home prices paused, showing little or no movement in April (0.0%), May and June (both up 0.1%). The second half of 2020 saw most of the housing price gain—increasing 3.7% from June to December—despite the ongoing pandemic.

Why did new house prices rise during the pandemic?

New housing prices generally fall during times of high unemployment and economic uncertainty and the COVID-19 pandemic has caused the largest economic shock of our lifetime. During the global recession in 2008-2009, new housing prices fell 2.3% in 2009 compared with the previous year. However, new home prices rose 2.1% in 2020 compared with 2019. How did this happen? The answer lies in how the pandemic has changed our world and some of those changes have contributed to higher new home prices.

Working from home is an important catalyst for housing demand

As Canadians adjusted to the new reality of working from home on a more permanent basis during the pandemic, demand for living space to accommodate personal and family needs grew. This could be the most significant factor in the rise in prices for new single-family homes in 2020.

Strong macroeconomic conditions

The Bank of Canada lowered its policy interest rate from 1.75% in January to 0.25% in late March to ease the impact of COVID-19 on the overall economy, and it has since maintained this rate. Historically low borrowing costs, coupled with increased disposable income, created an environment conducive to the growth in new home prices.

Soaring lumber prices push new home prices higher

The strong demand for housing, combined with an increase in renovation activities due to the continued stay-at-home orders and with reduced operations at sawmills last spring, all contributed to a surge in lumber prices across Canada. According to various sources, it is estimated that higher lumber prices could add at least $8,000 to $10,000 to the cost of building a single-family home.

A hot housing market is creating opportunities for the new home segment

According to the Canadian Real Estate Association, there were 2.1 months of available inventory in the existing housing market nationally at the end of December 2020—the lowest reading on record for this measure. As well, the national sales-to-new listings ratio was 77.4% in December, making it a seller's market in most cities and pushing buyers to the new home market due to the low inventory of existing homes.

Regional highlights for 2020

Ottawa, Montréal and Kitchener–Cambridge–Waterloo are Canada's hottest markets

Ottawa (+11.6%) saw the largest increase in new home prices in 2020 compared with 2019, followed by Montréal (+7.9%). Both CMAs led the price growth throughout the year.

On top of the strong demand and low inventory of available homes, both the Ottawa and Montréal CMAs are excluded from the foreign buyer tax currently in effect in Toronto and Vancouver, making the cities more attractive to potential homebuyers.

Kitchener–Cambridge–Waterloo (+6.2%) recorded the third largest new home price increase in 2020 compared with 2019. The relative affordability of this CMA compared with Toronto, combined with a rapidly growing technology sector, sustained demand for new homes in the region throughout the year.

Slower price growth in Canada's most expensive housing markets

New housing prices continued to rise in Vancouver (+1.3%) and Toronto (+0.9%) in 2020, as demand for single-family homes increased due to the pandemic.

New house price growth accelerates in cities near Toronto

With more people opting to live outside Canada's largest urban centres and given the flexibility to work remotely because of the pandemic, interest from homebuyers in more affordable housing markets outside Toronto grew. Guelph (+4.3%), St. Catharines–Niagara (+3.7%), Hamilton (+2.9%) and Oshawa (+1.6%) all saw new home prices rise at a faster pace in 2020 than in 2019.

Weak new housing market in Alberta and Saskatchewan

Weak economic conditions in resource markets, which were hit hard by volatility of oil prices, led to lower new home prices year over year in Regina (-3.9%), Calgary (-1.1%), Edmonton (-0.7%) and Saskatoon (-0.5%) in 2020. These were also the only four CMAs to show a price decline over this period.

Calgary, Edmonton and Regina continued to show signs of overbuilding in 2020, as reported in the Canada Mortgage and Housing Corporation's most recent Housing Market Assessment (PDF, 845 kb).

Chart 2 
New house prices are up 0.3% at the national level, from November to December

Outlook: New house prices projected to rise in 2021

We expect the new reality of working from home to become part of the routine for many Canadians. This will continue to lead to higher demand for living spaces and for single-family homes in order to accommodate individual and family needs.

These circumstances will further strengthen prices for single-family homes—especially in the relatively more affordable suburban markets. As a result, new home prices are expected to trend upward, especially in hotter markets where demand is high, because builders are selling homes very quickly and the inventory of available homes remains at historically low levels.

Additionally, demand for housing will continue to grow, driven by currently low borrowing costs as well as the vaccine rollout, which will bring renewed optimism and contribute to the gradual reopening of the economy. We may also see more builders offer personalized home features such as office space, extra rooms and bigger yards to meet the new and changing needs of buyers.

Contact information

For more information, or to enquire about the concepts, methods or data quality of this release, contact us (toll-free 1-800-263-1136; 514-283-8300; STATCAN.infostats-infostats.STATCAN@canada.ca) or Media Relations (613-951-4636; STATCAN.mediahotline-ligneinfomedias.STATCAN@canada.ca).