Construction material scarcity driving prices up in Montreal

by Neil Sharma on 16 Apr 2021

Low housing inventory in Montreal is contributing to rising prices, but that isn’t the only reason.

“You order material and suppliers will say two weeks, but then six, eight, 10 or 12 weeks go by, and this is what we’re seeing in most of our projects,” said Patrice Groleau, owner of McGill Real Estate, a brokerage involved in the sale of 60% of new construction developments in Greater Montreal.

“In one project, we increased the prices by 5% because of how difficult it is to secure material. The price of new construction is still rising. A lot of it explains why the value of real estate in the province is increasing right now, and it will keep going up until the end of the year.”

Groleau says suppliers are sitting firmly in the driver’s seat rather than developers and contractors.

“Everyone wants material, and the suppliers are saying, “Okay, are you willing to pay this much more for it?’”

He recounted one supplier telling him they aren’t taking new clients. Instead, they’re letting the clock tick, waiting for existing clients to become desperate at which point the supplier price gouges them.

Moreover, whispers of a strike at the Port of Montreal could exacerbate the problem.

Home sales on the Island of Montreal rose by 32% month-over-month in March, and only by 8% year-over-year, driven largely by condo sales surging 45% from February, according to data from the Quebec Professional Association of Real Estate Brokers (QPAREB). Groleau added that, in addition to low supply preventing buyers from resting on their laurels, optimism surrounding COVID-19 vaccines helped drive sales last month.

“Condos and new construction are catching up and that means buyers are optimistic with the vaccine, and we saw a huge, huge difference after the start of vaccination,” he said. “Obviously we won’t be able to keep that pace, but if there’s no inventory and there’s a shortage of new construction supply, it’s the perfect storm.”

According to a statement from QPAREB, rising valuations could soon become problematic.

“With market conditions continuing to be very favourable to sellers, median prices continue to soar, which increases the risk of drifting towards an overvalued market, especially in this particular economic context with its uncertain outlook. Single-family homes reached a median price of $481,000 (+32%). Median price increases were also remarkably high for condominiums (21 per cent) and plexes (8 per cent).”

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