Property experts say first-time buyers and Bank of Canada rate cuts have helped restore stability to a market that slumped from late 2008 to early this year, when the worst leg of the global financial crisis battered consumer confidence.

“We should be less fearful than we were six months ago, but I don’t think we should be exuberant yet. The resale markets in Canada are very strong. May numbers were pretty good, and June numbers will be even better,” said Will Dunning, an economic consultant who specializes in the housing market.

“But by July and into the fall there will be an offset of considerably slower activity. I don’t think it’s likely to go off a cliff. It’ll depend on what happens in employment and the broader economy, and how that affects confidence.”

Recent data suggest Canada’s residential property market, which weathered the financial crisis much better than its hard-hit U.S. counterpart, has been thawing for several months.

The latest Canadian Real Estate Association data shows May resale home prices rose 0.4 per cent to $319,757, topping the previous record set a year earlier. It was the first year-over-year increase since May last year. And sales activity climbed for a fourth straight month.

The industry group, which represents more than 97,000 real estate brokers and agents, also cut its forecast for a drop in home prices this year and said it expected sales activity to trend higher.

Meanwhile, Canada Mortgage and Housing Corp., the national housing agency, forecast in its second-quarter outlook that new home construction is expected to decline to 141,900 units in 2009 but rebound next year.

“ Stability is something you can’t overemphasize”

Still, no one predicts the residential property market is headed back to the heady times seen between 2002 and 2007, when prices surged and outpaced income growth. In some cities, such as Vancouver and Calgary, home prices doubled and are now going through a sharp correction.

A “stable but unremarkable” period for the real estate market is expected this year, said Philip Soper, chief executive officer of Brookfield Real Estate Services, an arm of Canadian property giant Brookfield Properties Corp that holds real estate broker brand Royal LePage.

“Stability is something you can’t overemphasize in terms of its importance for the housing market right now.”

Unless the global financial system succumbs to another crisis, analysts expect the Canadian home market is likely to stabilize further.

Activity from first-time buyers appears to be providing support because of stimulative measures by the federal government that allow these buyers to defray closing costs and withdraw more from retirement funds.

The Bank of Canada has also pledged to keep interest rates near zero until mid-2010, which could underpin confidence.

But the economy is still on shaky ground, contracting for the ninth straight month in April. And the unemployment rate spiked to an 11-year high in May, boosted by layoffs in the factories of Ontario.

Experts warn that further job losses in pockets of Canada’s export-oriented economy could slow the momentum that has been gathering in the housing sector.

“We don’t expect the recession to end until the fall. It’s clear that the spring fling in housing markets, this remarkable surge in resales and prices, has been driven by record low mortgage rates,” said Sal Guatieri, senior economist at BMO Capital Markets.

These record low rates, whether variable or fixed, had increased affordability for many buyers. But weakness in the bond market, caused in part by reduced investor demand for safe-haven assets, has pushed mortgage rates higher.

The posted rate on a five-year mortgage at Royal Bank of Canada, the country’s largest lender, has risen to 5.85 per cent from 5.25 per cent in April.

Brookfield’s Mr. Soper has been telling his management team to prepare for softness in the housing market in the second half.

“The advice I have been giving … is to accept the recovery this spring with humility, to continue to plan for a difficult second half of the year although the comparables are going to be positive simply because the second half of 2008 was so poor,” he said in an interview.

“But at least we have a stable market and stable prices, which is something that you need to encourage consumers to trade.”

http://www.theglobeandmail.com/report-on-business/real-estate-recovery-expected-to-be-tepid/article1204023/

reviewed by Moishe Alexander, CFC CEO

Canada Mortgage and Housing released its Spring Rental Market Report today. Highlights:

• The average apartment vacancy rate in Alberta’s urban centres increased from 2.9 per cent in April 2008 to 4.6 per cent in April 2009. All centres except Grande Prairie reported a higher vacancy rate in 2009.
• The 2009 vacancy rates ranged from a low of 1.2 per cent in Cold Lake to a high of 8.5 per cent in Grande Prairie.
• Calgary and Edmonton, the two largest urban centres, reported vacancy rates of 4.3 and 4.7 per cent, respectively.
• The provincial average rent for all unit types was $962 per month in April. At $2,088, Wood Buffalo had the highest average monthly rent amongst all urban centres in Alberta, while Medicine Hat had the lowest average rent at $654 monthly.

Brought by Moishe Alexander, CFC CEO.

Moishe Alexander’s Review

Highlights

Moishe Alexander says The average vacancy rate in the Kitchener CMA moved lower to 1.8 per cent. In the Guelph CMA, the average vacancy rate moved higher to 2.3 per cent. A number of factors which include a younger population, immigration, employment and less movement of renters to homeownership contributed to the change in rental demand. Rental housing demand will increase slightly in 2009. The vacancy rate will edge lower to 1.6 per cent in the Kitchener CMA and to two per cent in the Guelph CMA.

Minimal Changes in Rental Demand in Kitchener and Guelph

Vacancy Rate Lower in Kitchener/Higher in Guelph

Moishe Alexander says Demand for rental apartments in the Kitchener and Guelph CMAs moved in opposite directions. A small increase in demand contributed to a decline in the average vacancy rate for privately initiated rental apartments in the Kitchener CMA to 1.8 per cent from 2.7 per cent in 2007.  In the Guelph CMA, demand eased and the vacancy rate increased to 2.3 per cent from 1.9 per cent last year.  Although higher, the vacancy rate this year was still well below the levels seen in the five-year period between 2002 and 2006 when the vacancy rate averaged close to 3.3 per cent.
A number of factors, both demographic and economic, contributed to the changes in rental demand. In both Kitchener and Guelph, these factors include a younger population, strong immigration, youth employment, little employment growth and less movement of renters to homeownership.

Lower First-time Buyer Demand

Moishe Alexander says Many renter households took advantage of low mortgage rates throughout this decade and the longer amortization periods after 2006 and as a result, pent-up demand is largely satisfied and fewer renter households are planning to buy a home. House prices continue to rise and are discouraging some renter households from moving into homeownership. Some renter households may delay their home purchase as a consequence and remain in their rental accommodation for a longer period.

This lower first-time buyer demand is more pronounced in the Kitchener CMA as the difference between owning a home and renting an apartment is higher. In the Guelph CMA, steady job creation coupled with low borrowing costs enabled a lower but steady movement of first-time buyers into home ownership.

Population Characteristics Affect Demand

Moishe Alexander says A young population, a high level of immigration and declining household size contributed to the increased rental demand this year in the Kitchener CMA. These factors also kept demand in the Guelph CMA at a relatively strong level.

According to the 2006 Census, the Kitchener and Guelph CMAs have young populations compared to the Ontario average. Younger households are more likely to rent than older age groups. A large student population and a strong high-tech sector have contributed to the high youth presence and strong demand for rental housing. As well, many young people who gain full-time employment will move out of their parental home into rental accommodation. In the Kitchener CMA, while overall employment for those aged 15-24 has fallen, more than 1,200 full-time jobs in this age group have been created in the CMA in the last year encouraging youth household formation. In the Guelph CMA, while overall employment for those aged 15-24 has declined marginally, full-time jobs in this age group have fallen, limiting the formation of youth rental households.

In the 12 months ending June 30, 2007, more than 3,000 immigrants made their new home in the Kitchener CMA. Due to a high employment rate and relatively more affordable home prices and rents compared to the GTA, immigrants find the Kitchener CMA an attractive place to live. A large proportion of persons new to Canada will initially rent as it takes time to gain employment, establish a credit rating and save for a down payment.

Moishe Alexander says Smaller household size added to the demand for rental housing. According to the 2006 Census, one-person, lone-parent and couples without children households increased at a higher rate than couples with children households. A higher percentage of these smaller-sized households rent. The oldest baby-boomers are now in their sixties and many are looking to downsize. Renting is a viable option.

Resilient Local Economies

Moishe Alexander says The local area economies have remained resilient despite uncertainty in global financial markets and a weak US economy.

Although job growth has slowed in the Kitchener CMA, employment has remained at a high level. Job uncertainty and less confidence in the economy have delayed some renter households’ decision to purchase a home. However, for the first three quarters of 2008, employment in the Kitchener CMA grew by 2.4 per cent compared to the same period in 2007. All of the job gains were in full-time employment. While the goods-producing sector continues to be a drag on the local economy, the services sector continues to add jobs.

In the Guelph CMA, employment has remained at a high level with job growth of more than six per cent in the first ten months of this year compared to the same period in 2007.  With strong job growth in the 25-44 and 45-64 age groups, some renter households in these age groups were able to purchase a home.

Condominium Apartment Completions

Moishe Alexander says Condominiums are a more affordable type of housing compared to single detached homes and are a viable alternative to renting for first-time buyers. More than 80 condominium apartments were completed in the Guelph CMA this year. First-time buyers and empty-nesters, who may otherwise have rented an apartment, are attracted to this type of ownership housing. In the Kitchener CMA, only 50 condominium apartments were completed in the same period.

Rent Growth Below Inflation

Moishe Alexander says The percentage change of average rent from fixed sample is 0.9 per cent for a two-bedroom apartment in the Kitchener CMA and 1.6 per cent in the Guelph CMA. This measure is strictly based on structures that were common to the survey sample for both the 2007 and 2008 surveys. For the Kitchener CMA, this increase was well below the Residential Tenancies Act (RTA) guideline for 2007 of 1.4 per cent.  As well, this increase was below the inflation rate. In the Guelph CMA this increase was slightly above the RTA guideline for 2007, but below the inflation rate.

Rental Supply Declines In Kitchener

Moishe Alexander says At 174, the number of purpose-built rental apartments completed in the Kitchener CMA since June 2007 was somewhat lower than usual. Over the last five years, the number of new rental apartments completed has averaged about 650 annually.  Despite this additional supply, the private rental apartment universe decreased by 184 units because some apartments were converted to other uses. With more than 800 rental apartments under construction currently, completions next year will be more in line with the longerterm average.

No purpose-built rental apartments were completed in the Guelph CMA since June 2007. As a result, the private rental apartment universe remained unchanged this year.

Low Vacancy Rates for One and Two-Bedroom Apartments

Moishe Alexander says The vacancy rate for all bedroom types of rental apartments decreased in the Kitchener CMA The majority of private rental apartments are one and two-bedroom units. These two unit types accounted for 93 per cent of the total apartment rental universe and have the lowest vacancy rate at 1.8 per cent. The one-bedroom apartment vacancy rate edged lower to 1.8 per cent from 2.2 per cent a year ago, while the two-bedroom apartment vacancy rate declined more significantly from 2.9 per cent to 1.8 per continent

Moishe Alexander says A more than 100 unit decline in the supply of two-bedroom apartments combined with increased rental demand pushed the vacancy rate down to this level, the lowest since 2001. The widening gap between the average principal and interest payment for a resale home and the average two-bedroom rent has impacted some renters’ interest in moving into homeownership. With the more diverse financing options available after 2006, many first-time buyers were able to enter the resale market earlier than would normally have been expected, resulting in lower demand for homeownership from current renters.

Affordability Indicator

Moishe Alexander says According to CMHC’s rental affordablility indicator, affordablility in Kitchener’s rental market increased this year. The rental affordability indicator in Kitchener stands at 108 for 2008, up from 101 in 2007. The 2007 indicator was the lowest level of affordability Kitchener has seen in the thirteen years for which the indicator is available. The rental affordability indicator is not available for Guelph due to a lack of required data for that centre.
Rental Market Outlook: 2009

Moishe Alexander says Rental housing demand will increase slightly in 2009. The vacancy rate will edge lower to 1.6 per cent in the Kitchener CMA and to two per cent in the Guelph CMA. In the Kitchener CMA, demand for rental accommodation in 2009 will be boosted by immigration, rental household growth and little movement into homeownership. Migrants will continue to be attracted to the CMA due to its relatively stronger economy compared to other Ontario CMAs.

On balance, population will increase by 2,500 next year due to international migration. Immigrants represent more than 50 per cent of the net population increase due to migration. They tend to rent when they first move to Canada. Due to the expected lower job growth and uncertain economic conditions, more renter households will delay their plans to move into homeownership.  Although the gap between average rent and average mortgage carrying cost will narrow somewhat in 2009, the number of rental households will continue to grow. In the Kitchener CMA, with few new condominium apartments being built, younger, downsizing and aging households have little alternative but to rent.  On the supply side, with more than 800 rental apartments under construction in the Kitchener CMA, rental completions will be more in line with the historical average in 2009. This increased supply will partially offset the higher demand.  In the Guelph CMA, although 177 rental apartments are currently under construction, no new rental apartments will be completed by next October. With higher demand and no new supply, the rental market will tighten. On the other hand, with more new condominium apartment completions next year, some renter households will be able to move to ownership housing in this more affordable type of housing. As well, due to less than optimistic job prospects, some youth will remain in their parental home longer.

Moishe Alexander says With the vacancy rate in both CMAs expected to be below its 20-year average in 2009, there will be slightly more room to raise rents. In both CMAs, rent increases in 2009 will be in line with the Residential Tenancies Act guideline for occupied units of 1.8 per cent.

You can find the entire report in PDF format through the following link:
http://www.cmhc-schl.gc.ca/odpub/esub/64399/64399_2008_A01.pdf

Moishe Alexander’s Review

Single-Detached Starts Remain Resilient in 2008

Moishe Alexander says Single-detached starts should remain relatively flat over the next two years as gains in Kingston City are expected to offset weaknesses in South Frontenac Township. Therefore, construction for this type of dwelling is forecast to reach 570 units in 2008, close to the 600 units recorded in 2007. Year-to-date single starts have exceeded last year’s levels. But in the months ahead, construction activity will moderate amid growing concerns about the economic and job market conditions in Canada.

Next year, however, single-detached starts will ease further by nine per cent to 520 units, as builders react to rising new home inventories and sustained competition from the existing homes market. The recent surge in new listings provides more choice in the market-place and will snare many first-time home buyers away from the new homes market.  Nevertheless, the high end and custom design single-detached homes will maintain market shares as some baby boomers look to build their dream homes. This will help sustain single starts in the coming years.

New Semi-Detached and Row Units Gaining Ground

Moishe Alexander says While single-detached homes are most popular among home buyers in Kingston, many first-time buyers will more likely have to settle for semidetached, since the average prices of new single-detached homes across Kingston appear beyond the reach of less affluent households. As a result, semi-detached starts are predicted to reach 40 units this year over the 16 units posted in 2007. In 2009, however, starts for this type of dwellings are anticipated to decline slightly as the economy slowly recovers.

Meanwhile, row starts will retreat to 25 units in 2008 before climbing to 60 units in 2009. In general, slow economic and job market activity will translate into a shift in consumer demand away from single detached homes to less expensive townhomes and semis.

Expect Low Apartment Starts to Pull Down Total Starts

Moishe Alexander says New apartment starts are expected to fall this year and next. Construction has been inactive year-to-date as the market continues to absorb the high influx of new rental units that were started over the past two years. In addition, weak youth employment growth, low international migration combined with high vacancy rate point toward a decrease in new apartment starts in the next two years.

Although gradual and in line with demographic changes, the decline in apartment starts will prompt total housing starts to moderate from 880 units in 2007 to 635 in 2008 and further to 610 in 2009. In addition, negative net migration in the Kingston CMA is predicted as high youth unemployment encourages many young adults to leave the Kingston area for the bigger cities.  According to its recent publication, Statistics Canada reported that 9.1 per cent and 8.6 per cent of Kingstonians left the Kingston CMA for Montreal and Edmonton respectively – between 2001 and 2006.

Resale Market

Resale Transactions to Mirror Record Set in 2006

Moishe Alexander says Sales of existing homes through the Multiple Listing Service® (MLS) are forecast to ease by 3.9 per cent this year compared to last year’s record level, and then ease an additional 0.8 per cent in 2009.

Despite the moderation in MLS sales, our resale forecast for the next two years suggest more activity than the level recorded in 2006 – which was considered a strong year for existing home market activity. In addition to healthy full-time employment growth, the strong real income gains – as measured by the average weekly earnings – will help sustain the resale market.

More Balanced Market Conditions Will Slow Price Growth

Moishe Alexander says There has been strong price growth in the resale market in recent years, especially during the 2003 to 2005 period when the market saw a double digit increase. With moderating sales activity coupled with an increasing supply of new listings, price increases will not be as brisk in 2009. However, average MLS price increase will remain strong at 4.6 per cent in 2008 before dropping to 1.9 per cent in 2009.

As a leading predictor of future average MLS price increases, the current sales-to-new listings ratio is pointing toward a more balanced market condition in the entire Kingston CMA. Since 2000 the salesto-new listings ratio has been held firmly in the sellers’ territory. However, toward the end of 2008 we anticipate new listings to reach a record high of 6985 units, pulling down the sales-to-new listings ratio to 0.51 from 0.56 in 2007.

A drop in the ratio generally means a slow average MLS price increase ahead – which is in conformity with our forecast for 2008 and 2009.

The Economy

Employment Growth Is Brighter in 2009

Moishe Alexander says Employment growth in Kingston is forecast to slow to 0.6 per cent in 2008, as further manufacturing and accommodation job losses are combined with declining retail trade sector activity. However, the em-ployment outlook is slightly brighter in 2009 for two main reasons. First, both the health care and public administration sectors will boost overall labour market activity and, second, the manufacturing sector will finally begin a gradual recovery due to strengthening U.S. dollar visà-vis the Canadian dollar. The number of people employed in 2009 is expected to increase by 0.9 per cent.

A diversified economy and the expected decline in the Canadian dollar will help protect Kingston from a deep economic slowdown.  Continued economic growth will translate into job gains for Kingstonians and relatively low unemployment rate. Due to the aging population, a shortage of skilled labour in key industries will put upward pressure on wages. The resulting wage gains coupled with declining mortgage rates should have a positive impact on the demand for both existing and new homes.

Construction Sector Growth Solid

Moishe Alexander says Construction sector employment is expected to finish 2008 with positive job gains of 13 per cent. However, growth will be held back in 2009 almost entirely from the residential sector, as the housing market cools off.

Moreover, non-residential investment remains strong due in part to several ongoing projects. For instance, the phase 1 of the $230 million Queen’s Centre construction is still underway and is scheduled for completion in September of 2009.  Notwithstanding the gains from nonresidential activity, the construction sector suffered a setback as a result of the decision to postpone the opening of the Ethanol plant in Kingston later this year. The West Kingston Ethanol plant is not anticipated to open but until the spring of 2010.

Mortgage Rates

Moishe Alexander says Mortgage rates are expected to be relatively stable throughout the last quarter of this year, remaining within 25-50 basis points of their current levels. Posted mortgage rates will decrease slightly in the first half of 2009 as the cost of credit to financial institutions eases. Rising bond yields, however, will nudge mortgage rates marginally higher in the latter half 2009. For the last quarter of 2008 and in 2009, the one year posted mortgage rate will be in the 6.00-6.75 per cent range, while three and five year posted mortgage rates are forecast to be in the 6.50-7.25 per cent range.

You can find the entire report in PDF format through the following link:
http://www.cmhc-schl.gc.ca/odpub/esub/64335/64335_2008_B02.pdf

Moishe Alexander’s Review

Sherbrooke CMA housing starts and MLS® sales to fall in 2009

A slightly less favourable labour market in 2009

Moishe Alexander says In 2007, the labour market in the Sherbrooke census metropolitan area (CMA) was characterized, among other things, by the creation of over 2,000 jobs (+3 per cent) and a significant decrease in the number of unemployed individuals.  Personal disposable income per capita had in fact increased by 5.3 per cent. However, things changed slightly in the first nine months of 2008: the area now shows a small loss of 375 jobs, or 0.5 per cent, compared to the same period last year. The drop in full-time jobs was solely responsible for this loss, as part-time jobs posted a small gain (+0.7 per cent). The Bank of Canada now expects Canada’s economic growth to moderate in 2008 and 2009. Consequently, the Sherbrooke labour market will be slightly less favourable this year and next, which will not be without implications for the Sherbrooke housing market.  Still, the economic outlook for 2009 does appear brighter. Public investments included in the Quebec government’s infrastructure plan should somewhat stimulate the regional economy. Numerous employers, such as the CHUSFleurimont, CGI and Charles River Laboratories, will also be seeking new talent during this period.

Mortgage rates

Moishe Alexander says Mortgage rates are expected to be relatively stable throughout the last quarter of this year, remaining within 25-50 basis points of their current levels. Posted mortgage rates will decrease slightly in the first half of 2009 as the cost of credit to financial institutions eases. Rising bond yields, however, will nudge mortgage rates marginally higher in the latter half 2009. For the last quarter of 2008 and in 2009, the one year posted mortgage rate will be in the 6.00-6.75 per cent range, while three and five year posted mortgage rates are forecast to be in the 6.50-7.25 per cent range.

Net migration in the CMA expected to decline slightly in 2009

Moishe Alexander says In 2007, net migration in the CMA was about 1,150 people, the highest level in the last three years. However, the same scenario is unlikely to occur in 2008, since the preliminary data1 show a decrease in newcomers planning to settle down in the Estrie area this year. After the first two quarters, this level was down 7 per cent, compared to the same period in 2007. In addition, still attracted by the abundance of job opportunities, many more people will head out West, which will lower net migration in the CMA. This year, 1,100 migrants will therefore be looking for dwellings (mainly rental) in the CMA, which will dampen housing demand.

Net migration in the CMA should improve next year, however, as the Quebec government wants to substantially increase the number of immigrants by 2010. As interprovincial migration should still remain favourable to the Western provinces over the same period, only the increase in international migrants will help net migration rise in 2009 and get close to the 2007 level of 1,150 people.

Resale market to become more balanced

Moishe Alexander says The resale market in the Sherbrooke CMA stayed very active in 2007, with 1,918 transactions registered, for a 7-per-cent increase over the same period in 2006. The factors that likely accounted for this increase include healthy labour market conditions in 2007 and relatively low mortgage rates. The situation is very different this year: from January to September, MLS® sales are down by 5 per cent from the same period a year ago, with the decrease affecting mainly less affordable housing. This small decrease will not be erased by the end of 2008, such that MLS® sales will fall by 5 per cent for the year, to 1,820 transactions.

In 2009, the favourable financing conditions and improved labour market situation should help the resale market recover. As these economic changes will be occurring gradually and not all at once at the beginning of the year, MLS® sales will decrease by 2 per cent in 2009, to 1,780 transactions. Contrary to home sales, properties listed in the MLS® system from January to September were up 16 per cent compared to the same period in 2007 (1,160 in 2007, compared to 1,350 in 2008). These numbers have been rising steadily for the past five years. In fact, all housing types registered increases in listings, but especially condominiums (+40 per cent). The upward trend will also continue in 2008 and 2009, with active listings rising by 17 per cent this year to 1,365 units and by 8 per cent next year to 1,480 units.  Three factors effectively suggest that these increases will occur. First, with decreasing MLS® sales, homes will stay longer on the market. Second, a broader choice will prompt potential buyers to visit more houses before making a purchase, therefore lengthening the listing period. Third, new listings will also go up in the CMA and increase the housing supply. Given that sales and listings will follow opposite trends, the Sherbrooke CMA market will become balanced, with the seller-to buyer ratio2 reaching 8 to 1. This means that the power of sellers on the market will shift somewhat and that price increases will be less significant. The average price of properties sold through the MLS® system will therefore reach $186,750 this year (+1 per cent) and $188,600 in 2009 (+1 percent).

Moishe Alexander says In the first three quarters of 2008, the increase in the average price was in fact very small (half of a percentage point). This can be mainly explained by the decrease in the average selling price of homes in the upper price range ($250,000 or more) over the same period, which put downward pressure on the overall average price. This phenomenon occurred mainly in Magog and in the areas surrounding the city of Sherbrooke and therefore partly accounts for the small price increase noted to date.  The Magog resale market also stands out from the Sherbrooke CMA market in another respect. After three quarters, the number of properties sold (228) was 21 per cent below the same period in 2007 (288), and the MLS® average price was down by 3 per cent. There is every indication that Magog will end 2008 with decreases in both home sales and the average price3. In terms of sales, however, 2007 was a record year in Magog, relativizing this decline and minimizing its importance. In 2009, MLS® sales will remain stable in Magog, when compared to the 2008 level.

Housing starts to decrease in 2009

Moishe Alexander says In 2008, housing starts will increase by 16 per cent in the Sherbrooke CMA, from 1,318 units in 2007 to 1,530 this year. Both the singledetached and the multiple housing segments will contribute to this increase, but single-detached home construction will show better results. During the first three quarters of the year, foundations were laid for 580 single-detached houses, a historically high level. Strong employment growth in 2007 is one of the factors explaining this increased activity. However, the more moderate economic growth and job creation currently observed will have an impact on construction in this segment by the end of 2008 and on through next year. The new home market (as opposed to the resale market) usually reacts less rapidly to changes in economic conditions, as several steps must be completed before construction can begin, such as buying a lot and checking zoning bylaws. In 2008, 780 single-detached houses will be started, compared to 666 in 2007 (+17 per cent). In 2009, in addition to the moderating economic growth, increasing competition from the resale market, due to the rise in listings, will cause starts of this type to fall by 23 per cent to 600 units.
As for multiple-family (semidetached, row and apartment) housing construction in the CMA, starts were down 16 per cent after nine months of activity in 2008.  While semi-detached and row home building increased by 10 units (from 68 in 2007 to 78 in 2008), apartment starts fell by 20 per cent4 (from 459 units in 2007 to 367 in 2008).

This 16-per-cent decrease in multiple housing starts may appear irreversible at first glance, but construction in this segment will end 2008 on the rise (+15 per cent), with 750 units, versus 652 in 2007, as two large rental projects are currently under construction. In fact, a 150-unit retirement home will soon be added to Magog’s rental housing stock, and some 50 social housing units are being built in Sherbrooke.

As in the case of the single-detached home segment, multiple housing starts will also fall in 2009. The construction of semi-detached and row homes and condominium units will not be as hard hit by the decrease in activity, thanks to their relative affordability. Supply of these housing types is rising sharply on the resale market, however, which should still slow the pace of building for these types of dwellings.
Construction should therefore get under way on around 100 semidetached and row homes and 125 condominium units next year, or about the same volumes as in 2008. In addition, two factors explain why fewer rental housing units will get under way next year. First, the vacancy rate increase between 2008 and 2009 (see next section) will prompt builders to slow the pace of rental housing construction. Second, the rental housing starts volume for 2008 is being inflated by the construction of a large retirement home and some new social housing units, which means that the level of activity in 2009 will not be able to exceed the 2008 results. About 400 rental housing units will therefore be started next year, compared to 500 in 2008.

Overall, multiple housing starts in the Sherbrooke CMA will fall by 13 per cent in 2009 (from 750 units in 2008 to 650 in 2009). However, large rental housing projects could still get under way (Sommet de la Santé, Carré 100T) next year, which would change the current forecasts.

Rental market easing but will remain tight

Moishe Alexander says Following the hike in the vacancy rate posted last year, from 1.1 per cent in 2006 to 2 per cent in 2007, the rental market will ease slightly in the Sherbrooke CMA in 20085. The current demographic and economic context is pointing to a more moderate demand in this market, at the same time as 300 new apartments should be added to the rental housing stock. The very slight increase in demand will be mainly caused by the decrease in net migration in the area and by moderate job growth for young people in the area. In these conditions, the vacancy rate will reach 2.1 per cent in 2008, up by one tenth of a percentage point over 2007.

The results of the latest CMHC Rental Market Survey (conducted in April 2008) are in line with the above-mentioned forecast. In fact, the rate increased slightly, from 1.4 per cent in 2007 to 1.6 per cent in 20086, which bodes well for the results of our next survey, to be released in December 2008.
In 2009, as is the case this year, the rental market will continue to ease slightly, with the vacancy rate climbing to 2.2 per cent. While few traditional rental apartments7 will be added to the existing rental housing stock, demand in this market will only be bolstered by the anticipated moderate gains in net migration and youth employment.

Although market conditions will be easing, the average rent for twobedroom apartments will increase by 3 per cent in 2008 and 2009, reaching $545 and $560, respectively. It should be recalled that, even if the vacancy rate is on the rise, the proportion of vacant two-bedroom apartments remains relatively low, putting upward pressure on rents.

Retirement home vacancy rate should increase

Moishe Alexander says According to the latest Rental Market Survey results for the Sherbrooke CMA, the retirement home vacancy rate climbed by 3 percentage points between 2007 and 2008 (from 4.5 per cent in 2007 to 7.5 per cent in 2008).

Weaker demand for units in retirement homes, combined with a supply that remained relatively stable, accounted for this increase. Two major factors suggest that the retirement home vacancy rate will continue to increase in 2008 and 2009. First, the slower growth in the population aged 75 years or older8, the main clients in this market, should curb the increase in demand. Second, about 350 new retirement housing units will be added to the market by 2009, for an 11-per-cent increase in supply compared to the 2007 level. Other projects are also being planned and could double the number of units to almost 700 by 2010. Given the surge in supply and the slowdown in demand, the vacancy rate will rise over the next two years in the Sherbrooke CMA.

You can find the entire report in PDF format through the following link:

http://www.cmhc-schl.gc.ca/odpub/esub/64295/64295_2008_B02.pdf

Economic and demographic conditions

Moishe Alexander says in the Saguenay census metropolitan area (CMA), the labour market has been experiencing a slowdown for the past few quarters. In fact, following a loss of 175 jobs in 2007, the CMA saw 245 more jobs disappear from January to August 2008. This decrease in the number of employed persons resulted from a forestry crisis that forced several plants to shut down and also from the high job levels observed in the area in 2004 and 2006. These high employment levels were attributable to the labour demand from a few major industrial projects, including the construction of the Péribonka IV hydroelectric dam and the expansion of the Alouette plant in Sept-Îles. Since these projects have been completed and the next major industrial projects—construction of a new plant in Jonquière by Rio Tinto Alcan and the Eastmain-1-A–Rupert– Sarcelles hydroelectric power station by Hydro-Québec—are only at their preliminary phase, many workers are now unemployed. The projects will pick up the pace starting in the summer of 2009 and will reach their cruising speed in 2010. It is therefore expected that the number of jobs in Saguenay will decrease between 1.8 to 2.2 per cent in 2008. Despite this decrease, the employment level, at 69,000, will remain above the average of 68,000 for the last 10 years. In 2009, employment should pick up slightly.

Moishe Alexander says The Saguenay CMA economy has strengthened in recent years with the announcement of major investment projects, such as the widening of Highway 175 and the modernization of the Rio Tinto Alcan plant. In addition, the gradual increase in retirements seems to be having an impact on net migration, as there are more and more quality jobs for young people, who are no longer forced to leave the area. For the first time since the year 2000, the latest interregional migration statistics1 indicate a positive result for the 25 to 44 years’age group.  However, net interregional migration remains negative overall. At the interprovincial level, the CMA is also facing a deficit, although smaller.

Moishe Alexander says Lastly, only international migration has shown positive results since the beginning of the decade, but these levels are far from sufficient to offset the departures to other Quebec areas or other provinces. It is therefore expected that total net migration will go from -794 in 2007 to -600 in 2008 and then to -450 in 2009. Still on the demographic front, household formation remains positive, despite the decline in the population. The aging of the population, as well as divorces and separations, are the main reasons. In the Saguenay CMA, about 350 households will be formed annually over the next five years.

Mortgage Rates

Moishe Alexander says Mortgage rates are expected to be relatively stable throughout the last quarter of this year, remaining within 25-50 basis points of their current levels. Posted mortgage rates will decrease slightly in the first half of 2009 as the cost of credit to financial institutions eases. Rising bond yields, however, will nudge mortgage rates marginally higher in the latter half 2009. For the last quarter of 2008 and in 2009, the one year posted mortgage rate will be in the 6.00-6.75 per cent range, while three and five year posted mortgage rates are forecast to be in the 6.50-7.25 per cent range.

Residential construction to stay strong in 2008 and 2009

Moishe Alexander says For a fourth straight year, starts will be on the rise in the Saguenay CMA in 2008. In fact, after reaching 464, 485 and 685 units in the last three years, respectively, total starts in the area should attain 800 units in 2008.  This will be an increase of 17 per cent over 2007 and the highest result for the Saguenay CMA since 1991, when 955 starts had been enumerated. In 2007, both the freehold home segment2 (+35 per cent) and the rental housing segment (+58 per cent) had fuelled the growth. Since the first segment was very active last year, a small gain is expected in 2008. The construction of a building with more than 200 apartments in Chicoutimi will cause the second segment to post a greater increase and will account for 29 per cent of all starts in 2008.

Moishe Alexander says Given that financing conditions remain attractive, that the number of existing homes for sale is limited and that employment is at a historically high level, a slight decrease in expected in 2009. Construction should therefore get under way on 720 units, or 10 per cent fewer than in 2008.

Level of freehold home building will be high

Moishe Alexander says As mentioned earlier, freehold home building has been increasing significantly for the past few years. From an annual average of 265 units from 2000 to 2005, starts rose to 315 and 318 units in 2005 and 2006, respectively, and then to 430 units 2007. The last time that such a high volume was recorded in the Saguenay CMA was in 1997, after the flooding. At that time, many homes had been destroyed or damaged, resulting in a need to rebuild. The environment in which the market has evolved in recent years is therefore quite different and is instead based on solid economic fundamentals.

Moishe Alexander says In 2008 and 2009, the impact of these economic factors will remain positive. Despite the job losses registered since the beginning of the year, the labour market continues to benefit from several major industrial and infrastructure investment projects. As these projects are not dependent on the global economy, they will support the labour market over the next few years. Net migration will keep improving, which will lead to an increase the number of potential buyers and, as a result, a greater demand on the overall housing market. Lastly, mortgage rates should fall slightly, which will extend the attractive financing conditions of recent years.

Moishe Alexander says The tightening of the rental market in the last few years is another factor that must be taken into account. This should stimulate the construction of duplexes in 2008 and 2009, since the rental of the second unit provides these homeowners with a certain income.  The limited supply on the resale market will also boost the construction of freehold homes, as some households will be prompted to opt for a new house after not being able to find a property that suits them on the existing home market. We therefore forecast that 450 freehold homes will be started in 2008, or 20 more than in 2007 (+5 per cent). These new dwellings will include 375 single-detached houses and 50 duplex units. Most will be built in the boroughs of Jonquière and Chicoutimi, and a few, in La Baie and Saint-Honoré. In 2009, even though a slight slowdown is anticipated, the freehold home starts volume will remain high, with 420 such new units expected, or 7 per cent fewer than in 2008.

Retirement home segment supporting rental housing construction

Moishe Alexander says The construction of rental housing, with the exception of retirement homes, continues to be very limited in the Saguenay CMA. Until 2005, this was understandable, since the vacancy rate was still above 4 per cent, so there was no significant need for new units. Since then, however, the vacancy rate has been steadily falling. According to the latest results (April 2008), this rate stood at 1.8 per cent, which would normally stimulate apartment construction. But this is not the case, and it is not expected to be case in 2008 or 2009. The fact is that current construction costs— including the land—are such that it is difficult for developers to offer rents that would be competitive with average market rates, making it hard to rent out the apartments. In addition, with the aging of the population, another segment is taking over, namely, retirement housing.

Moishe Alexander says Since 2002, 51 per cent of all rental housing units started in the area had been intended for seniors. In 2008, this share will rise to 70 per cent, with the construction of the fifth phase of an existing residence in Chicoutimi (an expansion with over 200 apartments). In 2009, construction could get under way on another retirement home, this one with just under 200 units. These projects arose in part from the fact that the vacancy rate for apartment retirement homes in Chicoutimi stood at 0 per cent in October 2007. In all, it is expected that 330 rental housing units (including those intended for seniors) will be started in 2008, or 43 per cent more than in 2007. In 2009, there should be a slight decrease in activity, as 280 starts of this type are anticipated (-15 per cent).

Little movement on the rental market

Moishe Alexander says The aging of the population, the constant improvement in net migration and the good performance of the labour market in recent years have led to a greater demand for rental dwellings and, as a result, a tighter a rental market. This caused the vacancy rate to fall from 5.6 per cent in 2004 to 2.8 per cent in 2007. In addition to these factors, there should slightly more CEGEP students in the area in 2008. Supply, despite only a very small rise, should meet these new needs and, for this reason, we do not expect the market to ease significantly in 2008.  In fact, the vacancy should reach 3 per cent this year, compared to 2.7 per cent in 2007. For 2009, we are anticipating a slightly greater increase in supply as a result of the tighter market, while demand should, at the very least, be maintained. Consequently, the vacancy rate will reach 2.9 per cent in 2009.

Condominiums gaining a foothold in the area

Moishe Alexander says Condominiums seem to be taking root in the Saguenay CMA housing market. While their numbers are rather limited (some 20 new units annually since 2006), this is a tenure option that meets the needs of specific client groups. While their relatively low prices attract first-time home buyers, their low maintenance appeals to retiring households. They are very well suited to older households wishing to remain homeowners but for whom maintaining a property is becoming a burden. Given that the aging of the population will only intensify, activity in this market segment should at least be maintained in the short term. For the moment, the fact that new and existing homes are not as expensive here as in other large urban centres across Quebec, where condominiums are well implanted, is probably the main reason for the limited number of condominium starts in Saguenay. In 2008 and 2009, foundations should be laid for about 20 units of this type.

Fast growth in prices to affect existing property sales

Moishe Alexander says Sales of single-family homes3 reached a peak in 2007 in the Saguenay CMA.  In fact, 1,303 homes were sold through the Service inter-agences / Multiple Listing Service (S.I.A. / MLS)® during the past year, or 51 more than the previous record set in 2005 (1,252 transactions). In 2008, a slowdown is expected, even though the economic and demographic conditions will remain favourable. The reason is that singlefamily home prices have risen significantly in recent years, and this is starting to cause some hesitation among potential buyers. The average price effectively went from $94,346 in 2003 up to $136,913 in 2007, for an increase of 45 per cent in four years. For several years now, sellers have had the edge in determining prices, on account of the limited supply and a strong demand. Consequently, we are seeing price hikes well above inflation. Since the situation will not be any different in 2008, 1,230 sales are anticipated, and the average price should reach $150,000 (+10 per cent).

Moishe Alexander says In 2009, the sales volume will be essentially the same as in 2008, as the factors supporting demand will remain solid. However, inventories are expected to rise slightly in the price ranges that are in competition with the new home market. This should cause the market to ease, somewhat lessening the pressure on the average selling price in this range.  We therefore expect that singlefamily homes will sell for an average of $160,000 in 2009 (+7 per cent).

You can find the entire report in PDF format through the following link:
http://www.cmhc-schl.gc.ca/odpub/esub/64283/64283_2008_B02.pdf

New Home Market

Slowdown of New Housing Market

Peterborough - Credit Bobolink, Flickr Creative Commons

Moishe Alexander says Activity in the new housing market in Peterborough will moderate over the remainder of 2008 and in 2009. This pullback will be due to past price gains, an abundant selection of homes for sale in the resale market, and to some extent the economic slowdown. Though Peterborough’s economy is not as export-dependent as other regions, it will be somewhat affected by the strong Canadian dollar and trends in the U.S. economy. Starts will total 430 units by the end of 2008 and 410 units in 2009. Single-detached homes will continue being the pillar of home construction, with dominant shares of 74 percent and 76 percent over 2008 and 2009 respectively. Meanwhile, rowhouses will account for 14 per cent of total starts and will register total of 65 units and 56 units in 2008 and 2009 respectively. Apartment construction will remain stable at 40 units for both 2008 and 2009.  While the Peterborough Metropolitan Area (CMA) covers the regions of Peterborough City, Otonabee-South Monaghan Township, Cavan-Millbrook-North Monaghan Township, Douro-Dummer Township and Smith-Ennismore-Lakefield Township, Peterborough City accounts more than two thirds of new construction in the area.

Moishe Alexander says The average price of single-detached homes increased rapidly in the past several years, pulled up by the construction of more high value homes. In 2009, the average price of a newly absorbed single-detached home is expected to rise to $362,000, 2 per cent up from an estimated $355,000 in 2008.

Resale Market

Resale Market Cooling Off

Moishe Alexander says Sales of existing housing are expected to moderate by 5 per cent in 2008, to 2,750 units and by another 7 per cent in 2009. Demand will soften as employment growth slows.
Sales will decrease because fewer renters will make the move to ownership. The average price has increased quite strongly over the last few years. At the same time, part-time employment has increased faster than full-time job creation.

Moishe Alexander says This has made the decision to rent more attractive than home ownership for some households. With fewer renters becoming owners, the vacancy rate will decrease and rental costs will inch higher over the next two years.

Moishe Alexander says The strong increase in prices has drawn more sellers to the market.  As a result, new listings will reach 5,300 units in 2008 from 5,085 in 2007, before declining to 5,200 units in 2009. The decrease in sales of existing homes and the increase in the listings will push the sales to new listings ratio downward, indicating balance between demand and supply in this market.

Moishe Alexander says Overall, despite the slowdown in activity, the housing market in this region is still healthy, in part, because housing prices in Peterborough continue to be much lower than in surrounding markets. The price differential continues to attract people to the region.

Economic Trends

Healthy Local Economic Conditions

Moishe Alexander says The majority of the population growth in Peterborough is occurring in two age groups: 20-24 and 45-64.  In years to come growth in these significant age cohorts will continue to bolster housing demand as these two groups are associated with firsttime or repeat home buying.
Moishe Alexander says The Peterborough region is expected to benefit from several projects financed by the public and private sectors. The projects will have a positive impact on job growth, especially in the construction and service sectors. As the biggest employer in the region with more than 2000 employees, the health centre, which moved to a new facility in June 2008, is expected to increase its number of workers over the next two years. Furthermore, Peterborough will benefit from the financial contribution from three levels of the government to help with different projects for infrastructure needs and businesses growth, including projects such as the proposed rail transportation link from Peterborough to Toronto.  Nearly 80 per cent of employment in Peterborough is in the services sector. The services sector will continue to expand, taking advantage of the high investment in support of the aging population and the increased hiring of mature part-time employees. Yet, this strength in the services industry will not completely offset changes in full-time employment in the goods-producing sectors.  Therefore, employment is expected to grow modestly by 0.3 per cent to 56,800 and by 0.5 per cent to 57,100 in 2008 and 2009 respectively.

Mortgage Rates

Moishe Alexander says Mortgage rates are expected to be relatively stable throughout the last quarter of this year, remaining within 25-50 basis points of their current levels. Posted mortgage rates will decrease slightly in the first half of 2009 as the cost of credit to financial institutions eases. Rising bond yields, however, will nudge mortgage rates marginally higher in the latter half 2009. For the last quarter of 2008 and in 2009, the one year posted mortgage rate will be in the 6.00-6.75 per cent range, while three and five year posted mortgage rates are forecast to be in the 6.50-7.25 per cent range.

You can find the entire report in PDF format through the following link:
http://www.cmhc-schl.gc.ca/odpub/esub/65716/65716_2008_B02.pdf

Moishe Alexander’s Review:

New Home Market

New Construction Set to Slow by 5.5 Per Cent

Ottawa - Credit Abdullahh, Flickr Creative Commons

Moishe Alexander says the new home market is well set to finish the year up by 5.3 per cent from 2007, with a total of 6,850 new starts. This healthy number of starts constitutes the third highest annual record in the past 20 years. Even as the fourth quarter activity slows down, 2008 will end on a strong note. As Ottawa’s economy reacts to the current slowdown, it will prove difficult to maintain such record levels of new construction. Much like in the resale market, the new housing market faced recently a turning point toward slower growth and 6,000 new properties are expected to be built in 2009, down 12 per cent from 2008. The demographic trends in the next ten years are pointing towards slower housing demand numbers, which will run at an average of 5,300 new starts per year. New construction in the last years has been running above household formation as a result of replenishment of the existing stock.

Single-Detached Dwellings Trending Lower

Moishe Alexander says while still strong, the single-detached segment went from representing almost 64 per cent of total starts in 1999 to accounting for just over 45 per cent in 2007. Converging to a projected long term starts shares trend of 40 per cent for single-detached and 60 per cent for other type of dwellings, they are expected to close 2008 with 2,920 new properties built, down only 1.8 per cent from last year. Single-detached starts will likely finish 2009 on a weaker note with 2,350 new units. The growth in price for a new single family home in 2009 will slow to reach $417,500 or a 1.2 per cent increase.

Construction Flourishing in the Outskirts

Moishe Alexander says the top three urban neighborhoods where new construction has year-to date been particularly active are Nepean, Cumberland, and Kanata, where town home construction represented over 40 per cent of the total of new units and single-detached starts covered another 40 per cent.  Of the total new single-detached dwellings built in the Ottawa CMA over 85 per cent broke ground outside the Greenbelt area.

As the Queen City’s housing market grows, new construction of single family homes and town homes will flourish largely in newer areas outside of the Greenbelt. The rapidly increasing numbers of settled immigrants prefer the more affordable dwellings located in the outskirts of the City, even if that means longer commuting times.

New town home construction will add 2,200 new properties to the new home market, the third highest level in 30 years. there will be a decline in new town home construction in 2009 to 2,050 units. Nonetheless, this type of dwelling will lead the growth in new construction in our Nation’s Capital City.

High-Density Construction Will Be Favoured

Moishe Alexander says both economic and demographic trends have been supporting the growing popularity of apartments in Ottawa. On the one hand, the higher price of land at the City’s Core will sustain greater intensification apartment building projects. On the other hand, the expanding pool of young professionals and retiring baby-boomers favours the convenience offered by owning or renting a condominium apartment. Responding to these factors, this year will close with higher levels of condominium construction located at or close to the Downtown Core.

The outlook for new construction of apartments looks very promising. By the end of 2008, new apartment starts will reach the second highest level since 1992 with 1,500 new units built. Looking forward into 2009, new apartment construction will close with 1,400 new dwellings.

Rental Market

Slowdown in Vacancy Rate in 2009

Moishe Alexander says although there is a high demand for Rental Apartment units not only by young adults and financially weaker households, but also by newly arrived immigrants, new rental construction has accounted for less than 3 per cent of the total construction in the last five years.
As Ottawa receives on average around 6,000 new immigrants every year, strong demand for more rental units combined with a slowdown in inventory build-up will lead to a tighter Rental Market. It should be noted that condominium apartments do represent a source of rental supply as investors lease up their units. CMHC’s condo rental survey revealed almost 20 per cent of the almost 20,000 condominium apartment’s universe was rented out in 2007. In addition, the Secondary Rental Market survey conducted last year revealed a significant 4 per cent of the total population of Ottawa renting a dwelling as a secondary household.

Nevertheless, in the next years Ottawa’s Rental Market will be facing additional demand. Home price gains will deter first time home buyers from jumping into the homeownership market, pushing the vacancy rate further down to 1.9 per cent in 2008 and to 1.6 per cent for 2009. Even if there was a higher amount of new rental construction in the near future, it would take it a couple of years to enter the Rental Market.

The average rent for a two bedroom apartment will sit at $980 per month in 2008, up 2 per cent from last year, and will finally reach the $1,000 mark in 2009. Nonetheless, rental affordability has remained healthy and improving since 2006, supporting future rental demand.

Resale Market

Resale Market Trending Towards Balance

Moishe Alexander says after a slow first quarter, impressive resale activity this year in the Ottawa CMA offers further evidence of the local economy’s remarkable resilience to the wider economic uncertainty.  Recent activity is nonetheless leading Ottawa’s housing market towards slower, calmer waters in what constitutes a clear shift from recent growth trends to more sustainable levels.
The total number of resale transactions will retreat by 5 per cent in 2008 to finish with 14,000 transactions.  Such performance is still healthy by historical standards representing the second highest number of sales on record and exceeding by 4.8 per cent the average annual sales levels achieved since the turn of the century.

As Ottawa’s resale market adjusts to the current economic slowdown, the number of transactions in 2009 is anticipated to step back yet again but by a milder 4 per cent to a total of 13,400, thus gradually stabilizing sales activity along a more sustainable long term trend.
Market Trending Towards Balanced Territory

Moishe Alexander says the supply side of the Resale Market, new Listings, rebounded strongly during the second quarter of 2008 and is expected to close the year at a 4 per cent year-over-year increase.  Although a robust increase, resale volume will increase at a healthier pace this year; therefore, sustaining the existing home market in sellers’ territory.

Looking forward into 2009, it is anticipated that the Capital City’s resale market will trend towards a Balanced Territory. With the slight softening of demand and new listings remaining at a healthy level, the Sales to New Listings ratio will fall below the 55 per cent mark. Consequently, resale market conditions will support price increases at approximately the inflation rate.

Average Price Growth Rising Moderately

Moishe Alexander says consistent with a slower progression of average home prices, the average MLS price for residential properties in Ottawa will close 2008 at $288,500, or 5.7 per cent higher than last year. While the Capital City’s housing market adjusts further to the slowing economy, the average resale price will grow by a more moderate 3.6 per cent, reaching almost the $300,000 mark.

The Downtown Core Along with the Outskirts Remain Popular

Moishe Alexander says amid the uncertain prospects of a slower economy, the Core remains strong, complemented by healthy and fast-developing neighborhoods in the Queen City’s outskirts. This trend will continue as the rapidly retiring baby-boomers and young professional’s preferences are better by the convenience of living within closer proximity to the Core.  Accordingly, the price for existing homes in the Downtown Core will increase by over 9 per cent in 2008.  Notwithstanding the widespread year-to-date price gains observed, the increasingly popular neighborhoods of Orleans and Barrhaven have stood out in 2008.  These regions achieved a better position not only by appreciating faster than the average price wise but also in sales as well. Looking into next year’s trends, Ottawa’s outskirts will remain strong as these areas are newer and less expensive than the average in the Capital of Canada.

Economic Overview

Strong Public Sector Sustaining Ottawa’s Economy

Moishe Alexander says Ottawa’s employment growth is expected to finish 2008 on a strong note, increasing by 2.3 per cent over 2007, with an average of 498 thousand people employed. The Capital City’s economy will see a more modest pace of growth in labour market performance of 0.8 per cent, reaching an average of just over 500 thousand people employed in 2009.  While the Canadian economy decelerates, the Queen City has defied both national and provincial trends.  This is mostly due to a large and expanding Public Administration sector, which has more than compensated for the losses in the Manufacturing, Construction and Transportation sectors.

The Service sector, which constitutes almost 50 per cent of total employment, will grow by 4 per cent in 2008. Next year it is anticipated that the rate of growth of this sector will moderate for the whole province, as well as for Ottawa, as a result of a moderation in consumer spending.

Average Weekly Earnings Supporting Housing Demand

Moishe Alexander says the labour force growth in Ottawa is expected to slow down from a fast rate of 2.1 per cent in 2008 to a more sustainable 1 per cent growth in 2009. As the effects of the decelerating economy start to be felt next year, employment opportunities will grow at a slower rate than that of people looking for a job. Consequently, unemployment rate will stay tight increasing marginally to 5.1 per cent in 2009. Average weekly earnings will close this year 5 per cent higher than in 2007, while 2009 will see a more conventional, yet still remarkable, 3 per cent growth in average labour income. This high level of earnings is the backbone of healthy economic activity that is supporting our City’s housing market.

Migration Increasing into Ottawa-Gatineau

Moishe Alexander says with a population of almost 900,000 individuals in Ottawa and more than quarter million in Gatineau, the region posted an increase in migration last year with over 8,500 more individuals.  As Canada’s High Tech Capital, Ottawa’s workforce enjoys one of the highest incomes in Canada. This factor, along with its healthy level of employment, will help support increased migration into 2009.

Mortgage Rates

Moishe Alexander says Mortgage rates are expected to be relatively stable throughout the last quarter of this year, remaining within 25-50 basis points of their current levels. Posted mortgage rates will decrease slightly in the first half of 2009 as the cost of credit to financial institutions eases. Rising bond yields, however, will nudge mortgage rates marginally higher in the latter half 2009. For the last quarter of 2008 and in 2009, the one year posted mortgage rate will be in the 6.00-6.75 per cent range, while three and five year posted mortgage rates are forecast to be in the 6.50-7.25 per cent range.

You can find the entire report in PDF format through the following link:
http://www.cmhc-schl.gc.ca/odpub/esub/64311/64311_2008_B02.pdf

New Brunswick Economy to Face Short-term Challenges, Positive Long-term Prospects

Moncton - Credit stu_pendousmat, Flickr Credit Commons

Moishe Alexander says The New Brunswick economy has been marked by limited growth in 2008. Traditionally, the province has relied heavily on natural resources, and particularly the forestry sector, for economic development. The higher cost of New Brunswick products, due in part to higher energy prices, has led to softening demand for paper and other forest products, a former mainstay of the New Brunswick economy. Manufacturing in other sectors, as well as the transportation industry, have equally been subject to unfavorable conditions. However, the recent lower dollar will help offset some of the issues that the higher dollar created for manufacturing in the province.
Despite these challenges, the long term outlook for the province is positive. Capital investment has helped bolster the economy by offsetting the restraining effect of reduced exports. Multi-billion dollar projects, such as the expansion of the PotashCorp mining operation in Sussex and the refurbishment of the region’s only nuclear power generation station in the Saint John area, have sparked economic activity in Southern New Brunswick. Although the economic impact of current projects is significant, future projects planned for the region stand to make an even greater impact if approved. These include the construction of a new oil refinery and a second nuclear generation station in the Saint John area. Due to the number of skilled workers needed to complete projects of this magnitude, a positive announcement on one or both proposed projects would generate significant economic spin-offs throughout the province, bolstering in-migration and providing an overall boost to the New Brunswick economy.

The New Brunswick housing market posted strong results during the first three quarters of 2008 and it is expected to remain strong in historical terms in the fourth quarter. Despite softer economic growth in 2008, there was positive net-migration in both Moncton and Fredericton, as each centre benefited from solid service, retail and construction sectors. Inmigration to Saint John will remain muted for the remainder of this year as a formal announcement on the refinery project is not expected until 2009, minimizing any impact on the housing market in 2008. Plans for the second nuclear reactor at Point Lepreau are in the early stages and will have minimal effect on the housing market over the forecast period. As a result of migration to Western Canada, a smaller labour force in some specific trades continued to challenge the local construction industry, a strong contributor to New Brunswick’s robust employment numbers.  Expect limited GDP growth in New Brunswick in both 2008 and 2009.  Although the residential housing market will remain strong in historical terms, provincial housing starts are expected to decline to 4,200 units in 2008, with a further drop to 3,625 units in 2009.

Mortgage Rates

Moishe Alexander says Mortgage rates are expected to be relatively stable throughout the last quarter of this year, remaining within 25-50 basis points of their current levels. Posted mortgage rates will decrease slightly in the first half of 2009 as the cost of credit to financial institutions eases. Rising bond yields, however, will nudge mortgage rates marginally higher in the latter half 2009. For the last quarter of 2008 and in 2009, the one year posted mortgage rate will be in the 6.00-6.75 per cent range, while three and five year posted mortgage rates are forecast to be in the 6.50-7.25 per cent range.

Residential Construction to Remain Strong in Historical Terms

Moishe Alexander says Of the Province’s three major urban centres, year-over-year growth in new construction has been strongest in Saint John. To the end of the third quarter, total residential starts in the area exceeded last year’s pace by over 30 per cent, with both single and multiple starts benefiting from increased activity.

Speculation has been a driving force as economic development has blossomed in the port city in anticipation of the large scale expansion of the region’s energy sector. Despite fuelling activity in the local housing market, projects currently being considered for future development still face some uncertainty due to the enormous amount of resources necessary for completion. Meanwhile, current projects, such as the $1.4 billion refurbishment of the existing nuclear reactor at Point Lepreau, and the $1.7 billion expansion of the PotashCorp mining operation in Sussex, have helped foster increased economic activity. Consequently, housing demand over the forecast period is expected to remain strong in historical terms. For 2008, expect both single and multiple starts to exceed last year’s total with 490 and 360 units respectively. Expect a moderate decline in single starts to 440 units in 2009 while multiple starts will drop to 330 units.
Residential housing starts in Greater Moncton have remained high in historical terms in 2008 despite a decline in both single and multiple starts. The latter, in particular, have been bolstered by increased semidetached starts, the starter home of choice in Greater Moncton.
Economic development and strong employment in the area continued to fuel in-migration in 2008. Expect semi-detached starts to surpass last year’s record setting total, though this will be combined with fewer apartment starts. Nevertheless, multiple starts will remain at historically high levels with 760 units in 2008, followed by a subsequent drop to 670 units in 2009. And, although single starts will remain strong in historical terms, expect them to decline to 640 units this year, with a further drop to 600 in 2009.
After rebounding last year, single starts in Fredericton maintained a positive trend this year to the end of September. The local economy, bolstered by strong service and retail sectors, continues to foster job creation, helping to fuel in-migration and, subsequently, housing demand.  As a result, expect single starts to remain strong with 480 starts anticipated in 2008, followed by a modest drop to 430 units in 2009.  As for multiple starts, they were down during the first three quarters of 2008. Following reduced activity in 2007, expect a continued mild decrease in multiple starts to 200 units in 2008, to be followed by a small decline to 160 units in 2009.

Resale Market Resilient in Large Urban Centres

Moishe Alexander says After a strong start in 2008, MLS® sales in Greater Moncton have been stable with a minimal year-to-date decline of only 1.8 per cent to the end of the third quarter. Although sales have not faltered, a record number of new listings have provided ample selection for potential home buyers. Consequently, slower price growth has limited the year-over-year increase during the first nine months of the year to less than three per cent. With the current level of economic uncertainty, home buyers are expected to become increasingly conservative in both 2008 and 2009.  Expect sales to decline to 2,750 units in 2008, with a subsequent drop to 2,600 units in 2009. However, the average sale price is expected to maintain an upward trend, rising to $147,000 in 2008, followed by a further increase to $151,500 in 2009.
Existing home sales in Saint John have also maintained a positive trend in 2008. However, the year-overyear increase has been minimal, remaining under one per cent to the end of the third quarter. In contrast, the average sale price has experienced a significant increase through the first nine months of the year. As a result, Saint John has the distinction of having the highest average MLS® price in the province.  Enthusiasm regarding current and upcoming energy projects has contributed to the strong performance of the local resale market in 2008. The full impact will not be felt, though, until pending announcements, expected in 2009, become reality. Expect the resale market to remain strong in historical terms with 2,150 and 2,000 sales in 2008 and 2009, respectively.
Furthermore, the average sale price is expected to rise to $157,000 in 2008, with a subsequent increase to $163,000 in 2009.

In the Fredericton area, existing home sales have been below last year’s pace for the first three quarters of the year. As of the end of the third quarter, MLS® sales in Fredericton had declined by approximately 8.4 per cent compared to the same period last year. This was the largest decline among New Brunswick’s three large urban centres. Meanwhile, year-over year price growth was 7.6 per cent.  Despite signs of economic uncertainty, the diversified nature of the Fredericton economy continues to support strong employment numbers and should provide some stability over the forecast period. For 2008 and 2009, expect unit sales to reach 2,250 and 2,125 units respectively, with the average sale price climbing to $151,500 in 2008, and $158,000 in 2009.

Vacancy Rates to Decline in Some Provincial Centres

Moishe Alexander says Last year, the vacancy rate in Saint John and Moncton declined by 1.6 and 1.3 percentage points respectively. Meanwhile, in Fredericton, the local vacancy rate rose to 6.5 per cent last year -the highest vacancy rate among the province’s three major urban areas.  With the rapid development of the energy sector, increased in-migration will apply downward pressure on the vacancy rate in Saint John.  Expect the vacancy rate to decline to 4.8 per cent in 2008 and to 4.5 per cent in 2009. Following a large increase last year due to an increase in supply, the vacancy rate in Fredericton will decrease to 6.0 per cent in 2008, followed by another moderate decline to 5.5 per cent in 2009. In historical terms, a relatively large number of apartment starts were recorded in Greater Moncton in the last two years. As a result, an increase in the vacancy rate is anticipated in 2008, up to 4.8 per cent from last year’s 4.3 per cent. This will be followed by a subsequent increase to 5.0 per cent in 2009. In all three of the province’s three major urban areas, expect the average rent increase for a two-bedroom unit to be between two and three percent in both 2008 and 2009.

You can find the entire report in PDF format through the following link:
http://www.cmhc-schl.gc.ca/odpub/esub/64275/64275_2008_B02.pdf

Moishe Alexander’s Review:

New Home Market

Mixed Picture for Starts

Moishe Alexander says Housing starts in the Kitchener and Guelph CMAs will move in opposite directions in 2009. Housing starts in the Kitchener CMA will increase to 2,650 in 2009, up four per cent from the expected 2,560 starts in 2008. Guelph CMA housing starts will slip by three per cent to 890 in 2009 from the forecasted 920 starts in 2008. Rising house prices, a well supplied resale home market and uncertain economic conditions will combine to keep housing starts lower than levels seen in the first half of the decade. In the medium term, starts will be moving gradually higher in line with demographic requirements. Within the next ten years, the type and location of housing starts will be impacted by provincial and local efforts to use land more intensively.

Moishe Alexander says Single-detached starts in the Kitchener CMA will increase by eight per cent, while Guelph CMA detached starts will slip by two per cent. Detached homes remain the product of choice for many homebuyers. Wealthier move-up buyers will support demand for detached homes. After two years of moderate detached starts due to a lot shortage, increased construction activity in Cambridge will boost Kitchener CMA detached starts above the 2008 level.

Moishe Alexander says Single-detached homes are becoming more expensive. But, as demand for detached homes has eased in the past few years, price growth has slowed. The average price of a newly-completed single-detached home in the Kitchener CMA will reach $360,000 in 2009, up slightly more than one per cent, while Guelph prices will increase by less than two per cent. Looking ahead, higher lot prices and development charges will push up new home prices. The overall Kitchener CMA has a good supply of undeveloped land, but the ability of builders to acquire lots for single-detached homes in certain areas may impact prices moving forward.

Moishe Alexander says Semi-detached homes, townhomes and apartments are a more affordable option to higher priced singledetached homes. In both the Kitchener and Guelph CMAs, construction of these home types has been trending higher. With the emphasis on intensification, they will represent a significant share of future new construction – close to 50 per cent in both CMAs.

Moishe Alexander says Townhome construction activity will remain strong as row houses are a more affordable option for homebuyers who desire groundoriented living. Apartment construction will remain buoyant in both CMAs. In the Kitchener CMA, most developers plan to rent the new apartments due to the strong demand from the student population and younger workers for this type of housing. In the Guelph CMA, the focus of builders has shifted to condominium apartments as retirees, empty-nesters and firsttime buyers are attracted to the condominium apartment lifestyle.

Resale Home Market:

Sales Slowdown

Moishe Alexander says The resale home market in the Kitchener-Guelph area will continue to moderate in 2009. Sales of existing homes through the Kitchener-Waterloo Real Estate Board will reach 6,100 units in 2009, down six per cent from the expected 6,500 sales in 2008. Sales through the Guelph and District Real Estate Board will decline by seven per cent to 2,700 units. Rising house prices, uncertainty about the economy and the satiation of demand will dampen existing home sales in 2009. With the more diverse financing options available after 2006, many first-time buyers were able to enter the resale market earlier than would normally have been expected resulting in less first time buyer activity moving forward.  The price advantage of resale over new, more selection, and continued population growth will combine to keep existing home sales at strong levels, but below record 2007 levels.  Move-up buyer activity will support existing home sales through 2009. A well supplied existing home market will influence many homebuyers to inbegin the search for their new home in the resale market.

The supply of resale homes will move higher again in 2009. New listings are expected to reach near record levels which have not been seen since 1990. Rising home equity due to rising prices continue to encourage some homeowners to list their homes for sale so that they can move into a home more suited to their needs.

Moishe Alexander says The average price of a resale home through the KW Board will increase by two per cent in 2009 to reach $277,000. Guelph prices will reach $276,000, an increase of two per cent. With the number of new listings growing, and demand moderating, the sales-to-new listings ratio (SNLR), a leading indicator of price growth and a measure of market state, will move lower. The lower SNLR will be indicative of more balanced market conditions. As a result, existing home prices will grow at a slower pace.

Economic Trends:

Little Employment Growth

Moishe Alexander says Economic growth in the Kitchener-Guelph area will be flat in 2009.  Employment in the Kitchener CMA will increase by less than one per cent in 2009, while the Guelph CMA will see employment declining by less than one per cent. The unemployment rate is expected to inbegin crease in 2009, but will continue to trend below the Ontario average.  While the expanding service sector has been supporting employment growth in the past, lower consumer spending through 2009 will slow growth in this sector. Several employment sectors from a diverse economy continue to add jobs. Over the next year, job growth will occur in the high tech sector, as well as in the education, trade and construction sectors in the Kitchener CMA. These sectors are creating higher-paying jobs. On the other hand the manufacturing sector, and its largest subsector, the automotive industry, will continue to face challenges.
Moishe Alexander says Overall weekly earnings are forecast to increase by two per cent in both the Kitchener and Guelph CMAs in 2009. Despite the loss of higherpaying manufacturing jobs, many of the growth sectors have jobs which pay above-average wages. Employment growth in sectors such as education and high tech will continue to support housing demand.

Continued Population Growth

Moishe Alexander says Population growth in the Kitchener CMA has slowed due to an outflow of migrants to Western Canada. Net migration into the Kitchener CMA is expected to reach 2,500 persons in 2009. A diverse economy, high employment rate and more affordable house prices are attractive to migrants.  The Kitchener CMA cannot be characterized as a bedroom community.  According to data from the 2006 Census, only 14 per cent of employed persons who lived in the Kitchener CMA worked outside the CMA. Companies in the Guelph CMA, Peel Region and Toronto employ the most Kitchener workers.  On the other hand, companies in the Kitchener CMA employ more than 34,000 non Kitchener CMA residents.  More than 5,000 more people each day travel to the Kitchener CMA for work than leave the CMA. Similar Guelph CMA data shows that more than 25 per cent of employed Guelph residents work outside the CMA. Current gasoline prices will not induce most area commuters to move closer to their work.

Mortgage Rates

Moishe Alexander says Mortgage rates are expected to be relatively stable throughout the last quarter of this year, remaining within 25-50 basis points of their current levels. Posted mortgage rates will decrease slightly in the first half of 2009 as the cost of credit to financial institutions eases. Rising bond yields, however, will nudge mortgage rates marginally higher in the latter half 2009. For the last quarter of 2008 and in 2009, the one year posted mortgage rate will be in the 6.00-6.75 per cent range, while three and five year posted mortgage rates are forecast to be in the 6.50-7.25 per cent range.

You can find the entire report in PDF format through the following link:
http://www.cmhc-schl.gc.ca/odpub/esub/64323/64323_2008_B02.pdf