Housing starts are expected to end 2010 at 1,775 units, with 1,900 starts forecast for 2011. The resale or MLS®1 market will post 3,650 sales by the end of this year and reach the 3,600 level in 2011. The average MLS® house price is expected to end 2010 at $245,000 compared to $218,862 in 2009 and increase to $255,000 in 2011. “Despite the recent global economic uncertainty, strong fundamentals will continue to support demand for housing throughout the remainder of 2010 and in 2011,” said Chris Janes, senior market analyst with CMHC in Newfoundland and Labrador. “Overall, the positive outlook for the St. John’s area housing market will be reinforced by favourable trends in demographic and economic fundamentals, as well as on-going economic momentum fuelled by a lengthy list of major capital projects,” added Janes.

As Canada’s national housing agency, CMHC draws on more than 60 years of experience to help Canadians access a variety of quality, environmentally sustainable and affordable homes. CMHC also provides reliable, impartial and up-to-date housing market reports, analysis and knowledge to support and assist consumers and the housing industry in making vital decisions.

Moishe Alexander’s Review

Housing Market to Moderate in 2009

Charlottetown, PEI - Credit dmealiffe, Flickr

Moishe Alexander says starting in 2001 the Charlottetown housing market posted seven years of impressive growth that mirrored the national trend. Some of the key reasons for this increase in activity were low interest rates, low vacancy rates, steady employment growth, positive in-migration, and relatively low home prices. However, in 2005 rising vacancy rates and new home prices started to have a negative impact on the demand for new properties. The increase in multiple unit starts also created a situation where there was a temporary oversupply of rental units that was not fully absorbed until the end of 2007. However, one area where new construction has continued to remain strong is multiple units intended for homeownership. A key reason for the increased activity in this part of the market is the relative lower cost of semi-detached units compared to single-detached homes.  Despite the forecasted increase in semi-detached units over the next two years it is expected that the overall housing market will moderate over the forecast period.

Employment growth is forecast to post a slight improvement from the 2007 level and remain positive through the end of 2009. During the first three quarters of 2008 the increase in employment in Charlottetown can be attributed mainly to the public service and finance/insurance sectors. Employment in the construction sector started to decline in 2008 as numerous large non-residential projects are coming to an end. The net result of the increased employment levels is that the capital region is more attractive for job seekers when compared to other parts of the province. This fact has lead to the continued trend of urbanization in the province, as Islanders continue to move to the capital region from more rural parts of the province. Positive net-migration has been one of the main factors contributing to the sustained demand for housing in the capital region. The results from Statistics Canada’s 2006 Census revealed that the Charlottetown CA recorded a population gain of almost 1,400 people or 2.4 per cent, from 2001 to 2006. It also showed that within the CA, the Town of Stratford posted the largest population gain during this period, with an increase of over 700 people or 12 per cent.  This helps explain the substantial increase in new construction in the Stratford area and why the Town of 7,000 residents is able to rival the City itself for annual single-detached starts. In addition to the Census, Statistics Canada produces a series of data based on income tax returns (Tax Filer Data) that details the migration patterns by county on an annual basis. The results of this survey reveal that in any given year about 70 per cent of the people moving to the capital region are coming from elsewhere in the province. It also shows that of the remaining 30 per cent, the vast majority are coming from another major urban centre in Canada. These results seem to confirm the local theory that there are a number of ex-Islanders moving home to either retire or finish their careers.

Another benefit this trend provides is that many of the people returning home are coming from centres with much higher priced housing markets, which has resulted in some accumulating large amounts of equity. This also provides a partial explanation for the substantial increase in the new home price that has been recorded over the past five years. This trend of positive netmigration is expected to continue over the forecast period, and will continue to provide support for the local housing market.

While the local housing market has been performing well above average since 2001, it is expected to continue to moderate from the peak level of 2004. Despite the expectation that both in-migration and interest rates will remain favorable in 2008 and into 2009, these will not be enough to counter a slower growing local economy. As such it is expected that the construction of both single and multiple starts will not match the level set in 2007.

Rental Market:

Vacancy Rate to Decline in 2009

Moishe Alexander says the vacancy rate should post a moderate decline in 2008 due to a combination of steady demand for rental accommodations and a general decline in the construction of new rental units in the Charlottetown area. This will result in the vacancy rate inching down to 4.0 per cent in October of this year from 4.3 per cent during the same period last year. In October 2009, it is expected that the vacancy rate will decline once again to 3.8 per cent, due to further declines in the supply of new units. However, demand will continue to be supported by in-migration. Expect a larger than average rent increase in 2009 due to the nine per cent allowable rent increase for heated units, that was approved by the Island Regulatory and Appeals Commission in late 2008. Together these will result in average two-bedroom rents of $670 and $700 in 2008 and 2009 respectively.

Resale Market:

MLS® Sales Will Not Match the Peak Level Set in 2007

Moishe Alexander says the number of residential MLS® sales in the Charlottetown area is expected to decline over the next two years, due to the current economic environment. Since the start of the most recent economic cycle in 2000, the number of resale transactions in the Charlottetown area has only dropped below 500 sales once, and this is not expected to occur in either 2008 or 2009.  While the level of sales is expected to decline from last year’s level it is important to note that 2007 recorded the highest level of sales on record for the capital region.  Despite the aforementioned variables working against the local market, there are still aspects that will provide demand for existing properties. Employment growth is expected to remain positive over the forecast period, interest rates should remain low and the rising cost of new homes will help provide support for MLS® as homebuyers opt for existing homes.
Average price growth is expected to take a breather in 2008 after increasing almost $30,000 in the last two years alone. This appreciation in local real estate was partially the result of increased activity in the Stratford area were the homes tend to be newer and as a result more expensive. There was also increased demand for properties with water frontage or water views, which tend to command the highest prices in the province. Expect the average MLS® sales price to grow by a more modest four per cent in 2008 before slowing to one per cent growth in 2009.

New Home Construction Poised to Slow

Moishe Alexander says New home construction in the Charlottetown CA will slow in 2008 and again in 2009, due to a decline in most unit types. Semi-detached units, for the homeownership market will remain relatively strong over the next two years. During the first three quarters of 2008, semidetached starts maintained momentum from 2007, due mainly to their popularity with first-time buyers and this trend is expected to continue over the forecast period.  As first-time buyers show a clear preference for new homes compared to existing homes, and with the rising cost of a new singledetached homes, many first time buyers will look to the semidetached market.
Single starts, although slowing from the near record pace set in 2004, have continued to remain at above average levels. This decrease can be partially attributed to rising new home prices which have caused some potential buyers to opt for the resale market. The influx of people moving to the Island however should partially offset this and result in the construction of 275 new units in 2008 before slowing to 225 in 2009. Rental starts have been on the decline every year except one since reaching a 15 year high in 2002 with 143 units. This has been due in part to a rising vacancy rate which reached 4.3 per cent in 2007, from the almost record low of 1.8 per cent in 2001. With the vacancy rate expected to stay near the four per cent mark over the forecast period, expect to see developers continuing to focus on multiple starts for the homeownership market. As such, rental starts are expected to remain below the ten year average over the forecast period.

You can find the entire report in PDF format through the following link:
http://www.cmhc-schl.gc.ca/odpub/esub/64263/64263_2008_B02.pdf