We’ve all learned a lot and adapted for even transformed our businesses to manage the ongoing uncertainty that the COVID-19 global health pandemic has dealt us. Early spring 2020 saw businesses close their doors and a list of "essential businesses" dictated who could operate. Uncertainty came in so many forms and affected all Canadians, as well as those around the globe.
Here at home, uncertainty came in the form of; health & safety concerns, unemployment / temporary layoffs, rapid but unclear government assistance announcements, etc. All of these uncertainties left us wondering what the remainder of 2020 would bring. Now that we’re into 2021, here is what we’ve learned over the last year, trends we’ve seen and what we anticipate for the remainder of the year.
Booming urban areas putting outward pressure on rural areas
I don’t think you can talk about real estate values without highlighting the extraordinary increases seen by the residential markets throughout 2020 and into 2021. As the office buildings in major urban centres vacated for the initial COVID-19 lockdown in mid-March 2020, employees quickly eliminated their lengthy commutes and fled to bedroom communities, as they became less dependent on their physical offices. High-rise condo dwellers and others paying premiums to live close to work flocked toward the detached home lifestyle and prices increased dramatically in areas like Guelph, Kitchener/Waterloo, Cambridge, Rockwood, Fergus, Elora, etc. The appeal of working from home, having more living space and having your own yard exacerbated the inventory shortage for single-family homes in these communities. The impacts spread even further down the 401 corridor to Woodstock, Ingersol and Tillsonburg. These pressures were also felt on the rural housing and hobby farm market, as prices began to soar for a little bit of extra acreage. Well into 2021 now, inventory continues to be a prominent issue in these communities and beyond. In addition, demand continues to be strong, as the hopes for timely vaccine rollouts get pushed back and office employees have no concrete return-to-work date.
Land prices throughout the COVID-19 pandemic
Similar to the residential housing market, general farms and farmland prices in Southwestern Ontario were resilient and saw no adverse effects from the pandemic. The areas that our firm frequented most often in the last year (Perth, Wellington, Waterloo, Dufferin, Grey and Bruce Counties) saw varying levels of modest growth. These rate increases do not compare to the farmland boom in 2012/2013, however, areas to the north saw above-average increases by as much as 10% over the last year. West Grey, East Luther/Grand Valley, Southgate and Grey Highlands Municipalities saw some of the stronger land value increases, however, some areas such as to the east of Guelph, even broke the $25,000/workable-acre barrier that seemed to be the tipping point of cash crop lands in the area for the previous few years.
Minimally improved farms and parcels of vacant land continued to be in high demand in areas that are highly populated with large-scale livestock operations and / or cash croppers. A parcel located near the home farm of one of these operations continued to receive premiums, some as high as 20% above market value.
Rapidly rising construction costs due to soaring lumber prices
Another disruption to the agricultural landscape – particularly with respect to new construction – was the soaring prices of lumber. Some Canadians tended to their sourdough starters and hoarded toilet paper while others went on a home renovation rampage. Home renovations contributed to the rapidly rising costs of lumber, along with wood fibre shortages in British Columbia, as well as labour shortages across the border. The shortages on the supply side paired with the increased demand for these home renovations resulted in soaring lumber prices. It was estimated by home builders that the increased costs of lumber have added anywhere from $10,000 – $30,000 to the cost of building an "average" home in Canada. Anecdotally, some of our customers who were mid-construction, reported their lumber prices rising anywhere from 40% and beyond from their initial quotes! That being said, experts expect inventory to meet demand as pandemic restrictions ease.
What did we learn and what does this mean for the remainder of 2021?
A global health pandemic can add fuel to an already-robust housing market in both bedroom communities and rural areas in Southwestern Ontario. The residential housing markets in our area show little signs of slowing down as inventory remains low and demand remains high. While borrowing remains cheap, and until employees are recalled to their physical places of work, there is little likelihood that we will see this slow down. As of now, it looks like most employers are waiting until there is significant traction with vaccine rollouts before going back to work, and the demand for housing in these communities is expected to remain high for the rest of – or at least most of – 2021.
Land values have proven to be very resilient throughout the pandemic. Land values in prime areas are expected to continue to see modest growth, however, traditionally less-expensive areas are expected to continue to see above-average growth as affordability in the prime areas continues to decline, borrowing remains cheap and the supply of farmland is limited.
S.W. Irvine & Associates