Ottawa has a hot sellers’ market in real estate right now, with limited listing inventory and price increase levels we haven’t seen since the advent of super low mortgage rates almost 2 decades ago. New construction homes have similarly been enjoying significant sales success and similar price bumps. Unfortunately, we do not have stats to track new construction sales or average price increases but let’s assume they are going up at least as much as resale homes which is approximately 9% year-to-date for both residential and condo sales.
With increased unit sales and some labour shortages, builders are stretched to deliver the volume of possessions, so lead times have been extended and customers are generally having longer waits for their new build home. *though there are many spec homes being built and sold with somewhat shorter delivery times. It is not unusual for a new home buyer to wait a year or more, for their new home to be ready for occupancy.
In this rising market however, that is not a totally unhappy circumstance for buyers. The first time buyer has longer to save up for a larger down payment or for other costs, such as window coverings, appliances, furniture, etc.
The new home buyer who also has an existing property, is really “doubling down”, with both their existing property and the new build property appreciating in value at the same time. Depending on how much down payment the builder requires, the new home buyer may be seeing as much as a doubling of their down payment amount in increased equity on the new build, before they even move in!
So it should be a “no-brainer”, right?
With expectations of at least another 5-6% increase in overall average selling prices in 2020, (perhaps more in entry level and medium price points) buying new construction certainly appears to be a pretty safe bet, provided the future delivery of the new build is not too far out there. No one has a perfect crystal ball, so it is tough to be sure what the markets might look like 18-24 months from now. Some may remember that many buyers in Toronto got burned in recent years when, prices levelled off or even dipped which caused them to be underwater on their investment.
Things to remember about new construction purchases:
Builders typically want 10% or more down on a purchase(at time of signing), so this can run in to a fair amount of cash and buyers will have to have a good financial plan to manage this down payment.
Getting a handle on new construction total costs is often a bit of a challenge, as typically one can’t get 100% accurate upgrade costs, until they have already “signed on the dotted line” for the base price of the property. Parking costs and storage costs are also extra in almost all new condos, too. This requires some flexibility in budget or buyers can find themselves compromising important upgrades to keep the overall costs within desirable parameters.
The market for new homes is very competitive, so just like resale, the “you snooze-you lose” premise is very much a factor. The couple in the sales centre at the same time as you, may well write the cheque for a “hold” on a specific lot or unit, while you are still touring the model home.
Few incentives on the table:
Builders have adjusted their incentive programs for both buyers and Realtors, so the type of bonuses available only 3 or 4 years ago are long gone. Don’t expect to be able to negotiate much of a “deal” (if any!) in this sellers’ market. If your Realtor is less than enthused about your interest in a new construction purchase, it may be because the financial remuneration they receive is slim or none, for assisting you with that purchase.
Beware the “boiler room” environment in new home or condo sales: New lot releases and new subdivision or condo launches can be a good time to try and be first in the queue to secure most desirable choices within a development or condo. However, many times, these events are super hyped and promoted with the “buy-now-or-lose-it” pressure of a timeshare selling environment which can contribute to some hasty or ill-informed buying decisions. Condos can be the biggest example and are typically also the furthest down the road on the delivery date. This can provide a major risk to buyers, if the market changes, before that condo is built.
We have seen recent examples where some new developments are already “sold out” even though the planning approvals have not yet been received. Changes to accommodate planning requirements can make changes to what buyers have actually bought and may not bring pleasant news to buyers who thought they were doing the right thing by buying first.
Delivery timelines dictate selling of existing property:
Those who are “double dipping” will eventually have to sell the current home and delivery timelines are out of the buyers’ control. This can lead to some awkward timing in selling an existing property, to coincide nicely with the possession date of the new build. For example, a February or March possession date, probably means listing in December which is not the best time to be selling for most. Delays can also push out possession dates by 60-90 days and though builders are usually very good about meeting their delivery dates, things do get delayed for a variety of reasons.
Many new construction buyers have done very well in recent years, particularly those that bought in tougher markets back in 2014 or 2015 when builders were anxious to do a deal. Though the short term looks very positive for those interested in this form of “double-dipping”, there can be no guarantees when trying to guess on future market dynamics or complexities.
Remember, there is typically no cost to utilizing a Realtor’s services and expertise with your new construction plans, so don’t miss out on what could be invaluable 3rd party advice and counsel.
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