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Housing Market Outlook Trois-Rivières CMA

Residential real estate market to remain active in 2009 and 2010

Despite a slight slowdown, activity will remain solid on the Trois-Rivières census metropolitan area (CMA) residential real estate market in 2009 and 2010. In fact, transaction volumes will stay high on the resale market, as will housing starts, which will remain above the average levels for the last few years. The rental market, for its part, will continue to post a relatively low vacancy rate. Even though the job market will be sluggish, financing conditions, which will still be very favourable, combined with strong migration, will energize the market. Job market to stay sluggish
The economy in Trois-Rivières, like in several other areas around the province, was affected by the global economic crisis that has been prevailing for over a year now. Already, the regional economy had suffered from the surging loonie, which had severely tested manufacturing companies by undermining their competitiveness on the market. The ensuing decline in demand, as a direct result of the economic slowdown, only made things worse. Consequently, job losses have now been accumulating for four quarters in the Trois-Rivières CMA (with almost all the losses having been full-time positions), in pace with the announcements of layoffs and plant closings, which have increased. On the other hand, the area will benefit from the vitality of other sectors of the regional economy, including the non-residential

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Moishe Alexander’s review of the Sherbrooke Rental Market and CMHC Outlook Report Fall 2008

February 24, 2009 — Moishe Alexander’s review on how the current world economy and Canadian economic turndown is affecting the Sherbrooke Rental Market

Moishe Alexander’s Review

Highlights

Moishe Alexander says the rental apartment vacancy rate went up again in the Sherbrooke census metropolitan area (CMA). After climbing by 1.2 percentage points in 2007 to 2.4 per cent, the vacancy rate continued to increase in 2008, reaching 2.8 per cent. The rental market has been easing for five years. The estimated change in the average apartment rent was 2.1 per cent between the October 2007 and October 2008 surveys in the Sherbrooke CMA.

Higher vacancy rate in 2008

Moishe Alexander says According to the results of the latest CMHC Rental Market Survey conducted in 2008, the rental apartment vacancy rate1 went up again in the Sherbrooke census metropolitan area (CMA). After climbing by 1.2 percentage points in 2007 to 2.4 per cent, the vacancy rate continued to increase in 2008, reaching 2.8 per cent. As shown in Figure 2, the rental market has in fact been easing for five years.

In the other CMAs across the province, the vacancy rate increased only in the Trois-Rivières area (from 1.5 per cent in 2007 to 1.7 per cent in 2008). The vacancy rates fell in the Montréal CMA, the Gatineau area and the Saguenay CMA, to 2.4 per cent, 1.9 per cent and 1.6 per cent, respectively, for decreases of 0.5, 1.0 and 1.2 percentage points. It was in the Québec area, however, that the market was the tightest, with fewer than 1 per cent of the apartments vacant there.

Supply remains stable but demand moderates

Moishe Alexander says The vacancy rate increase in the Sherbrooke CMA in 2008 resulted from a moderating demand and stable supply. The number of units in the rental housing stock dropped by 6 per cent in the CMA (from 32,891 units in 2007 to 30,842 units in 2008), but this decrease was mainly caused by the withdrawal of retirement home apartments from our 2008 survey universe. Given this change, supply effectively remained fairly stable between 2007 and 2008 (-1 per cent). At first glance, the stability of the rental housing universe may seem surprising. In fact, between our October 2007 and October 2008 surveys, just over 300 traditional rental apartments were completed, which should normally have increased supply on the market. However, as mentioned earlier, the rental housing stock decreased by 300 units.

This does not necessarily mean that there were fewer rental units on the market this year than last year. It is possible that a number of buildings had to be temporarily withdrawn from the survey universe, as they contained fewer than three rental units. This can occur when one of the apartments in a three-unit building is occupied by the owner.  On the demand side, migrants who come to an area, whether from other areas of Quebec or elsewhere, are definitely one of the main factors. In fact, most newcomers to an area choose to rent when they arrive.

Preliminary data2 show that fewer immigrants planned to settle in the Estrie area in 2008. At the end of the first half of 2008, the data showed a decrease of 7 per cent compared to the same period in 2007 (about 40 fewer people). Should the data turn out to be accurate, the decline in immigration in 2008 could therefore be partly responsible for the increase in the vacancy rate this year.  In addition, still attracted by the abundance of job opportunities out West, people from Sherbrooke may have continued to move there, lowering net migration in the CMA and weakening potential demand for rental units.
Another factor that may have contributed to the rise in the vacancy rate is the fact that the labour market has been less favourable to young people since the end of 2007, which may have caused some of them to delay leaving the family home, further moderating demand for rental apartments.

Impact of homeownership

Moishe Alexander says As we have already mentioned, the proportion of vacant rental units has been increasing for a few years now in the Sherbrooke CMA. In recent years, sales of existing and new homes have remained strong, suggesting that many renter households made the transition to homeownership, which therefore pushed up the vacancy rate.

In fact, young households now account for a slightly smaller share of rental market clients, as indicated by the 2001 and 2006 census data. It is likely that a greater number of young households are now moving straight to homeownership and bypassing the rental market, also contributing to driving up the vacancy rate. While there are no data to confirm or refute this hypothesis, many younger people may have been attracted to buying homes, such as condominiums, which are more affordable. In fact, sales of new and existing condominiums increased significantly in 2007 and 2008 in the Sherbrooke CMA. It should also be mentioned that financing conditions are still favourable to home buying, such that young households can consider becoming homeowners.

Market easing for larger units

Moishe Alexander says As was the case last year, bachelor units posted the least tight conditions on the rental market, with a vacancy rate of 4.9 per cent in 2008. As well, the market eased for apartments with three or more bedrooms, with the vacancy rate increasing by 1.4 percentage points between the last two October surveys (1.4 per cent in 2007, versus 2.8 per cent in 2008). The decrease in the number of immigrant families, often larger than families who are native to the area3, may have contributed to the increase in the percentage of unoccupied units in this category. The vacancy rate for two-bedroom apartments also rose, but to a lesser extent.

Vacancy rates up in almost all sectors of the CMA

Moishe Alexander says The vacancy rates in the west and central districts of the city of Sherbrooke increased in 2008. Having now surpassed 3 per cent in both districts. Among all the zones in the CMA, the west district posted the largest year-over-year vacancy rate increase (+1.7 percentage points). Students from the Université de Sherbrooke usually fuelled demand for rental units in that sector. While this policy had no impact last year, free public transit for students may have encouraged some to look further away from campus for an apartment that would better meet their needs. While the vacancy rate rose for all unit types combined, rental market conditions in the west district particularly eased for bachelor apartments, which are usually popular with students. In fact, the proportion of vacant units in this category jumped from 1.8 per cent to 7.9 per cent. In the former city of Sherbrooke, the east district recorded the smallest percentage of unoccupied units (1.9 per cent). In fact, it was in this district that the withdrawal of retirement home apartments from our survey universe this year had the greatest impact. In effect, by including retirement homes, the 2007 vacancy rate was much higher there. It should be recalled that our latest retirement home market survey report showed that many rental units were vacant in the east district.

The vacancy rates also increased

Moishe Alexander says year-over-year in the former suburbs of Rock Forest (from 1.2    per cent to 1.4 percent), Fleurimont (from 1.4 per cent to 2.1    per cent) and Ascot–Lennoxville (from 3.8 per cent to 5.1 per cent).  However, rental units in these sectors account for less than 25 per cent of the total rental housing stock in the CMA. Contrary to the other sectors of the CMA, the Magog area saw its vacancy rate drop to 2.9 per cent in 2008 (from 3.3 per cent in 2007). With the regional manufacturing sector experiencing difficulties, some renter families likely decided to postpone the purchase of a home. In fact, market conditions got tighter for units with three or more bedrooms, as their vacancy rate fell by 1.9 percentage points (from 4.8 per cent in 2007 to 2.9 per cent in 2008). With sales of existing singlefamily houses having fallen significantly in the area in 2008, larger apartments may have become the best compromise for renter families in the current economic environment. It is also possible that workers seeking better job prospects left the area, further moderating the rental housing demand.

Rents in 2008

Moishe Alexander says The estimated change in the average apartment rent was 2.1 per cent between the October 2007 and October 2008 surveys in the Sherbrooke CMA. Apart from onebedroom units, for which the average rent rose by 4.2 per cent, the other unit types recorded increases of around 2 per cent.  The average rent for two-bedroom apartments reached $543 while, for apartments with three or more bedrooms, the average attained $658. The average rents for bachelor apartments and one-bedroom units, for their part, rose to $368 and $437, respectively.

Older buildings bear the brunt of the easing rental market

Moishe Alexander says In the CMA, there were greater proportions of vacant units in rental structures built before 1990 (see Table 1.2.1). Buildings completed from 1960 to 1974 posted the highest vacancy rate (3.6 per cent).  Conversely, very few apartments were vacant in structures built from 1990 to 1999, which had a vacancy rate slightly above zero (0.4 per cent).

The trend observed in the last few years for smaller structures (with three to five units) continued, as they still posted the lowest vacancy rate (1.7 per cent). This result contrasted with that of residential buildings with 20 to 99 units, for which the vacancy rate was slightly below 4 per cent.

Rental affordability falls slightly

Moishe Alexander says CMHC’s rental affordability indicator4 is a gauge of how affordable a rental market is for those households which rent within that market. In 2008, the affordability indicator4 was 128, compared to 133 in 2007. While rental affordability has decreased, Sherbrooke area households continued to spend less than 30 per cent of their gross income on rent, as they have for the last ten years. In 1998, the indicator had dropped below 100, reaching 93.

In addition, a review of the data for two-bedroom apartments, which do account for over half of the rental housing stock in the CMA, reveals that affordable units remained the (from 3.3 per cent in 2007). With the regional manufacturing sector experiencing difficulties, some renter families likely decided to postpone the purchase of a home. In fact, market conditions got tighter for units with three or more bedrooms, as their vacancy rate fell by 1.9 percentage points (from 4.8 per cent in 2007 to 2.9 per cent in 2008). With sales of existing singlefamily houses having fallen significantly in the area in 2008, larger apartments may have become the best compromise for renter families in the current economic environment. It is also possible that workers seeking better job prospects left the area, further moderating the rental housing demand.

Rents in 2008

Moishe Alexander says The estimated change in the average apartment rent was 2.1 per cent between the October 2007 and October 2008 surveys in the Sherbrooke CMA. Apart from one bedroom units, for which the average rent rose by 4.2 per cent, the other unit types recorded increases of around 2 per cent.  The average rent for two-bedroom apartments reached $543 while, for apartments with three or more bedrooms, the average attained $658.  The average rents for bachelor apartments and one-bedroom units, for their part, rose to $368 and $437, respectively.

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

http://www.cmhc-schl.gc.ca/odpub/esub/64447/64447_2008_A01.pdf

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Moishe Alexander’s review of the Gatineau Housing Market and CMHC Outlook Report Fall 2008

February 24, 2009 — Moishe Alexander’s review on how the current world economy and Canadian economic turndown is affecting Gatineau Housing Market

Moishe Alexander’s Review:

Pace of residential construction to moderate in 2009 after peaking in 2008

Gatineau Quebec - Credit Abdallahh, Flickr Creative Commons

Moishe Alexander says This year will end with more housing starts than in 2007 in the Gatineau area. Already, for the first nine months of the year, the CMHC survey results show that starts are up 2 per cent compared to the same period in 2007. This upward trend is expected to continue in the fourth quarter and bring the annual starts total to 3,000 units, for an increase of almost 8 per cent over 2007.

Moishe Alexander says Only in 2009 will construction begin to ease in the Gatineau area. In fact, there should be 400 fewer starts in 2009 than in 2008, which will bring the number of new units back down to 2,600. As Canada’s economic growth will be weaker than anticipated this year, consumers will be more inclined to save. However, the area’s economic structure, about 40 per cent of which is based on the public sector, and the strong job creation observed since the beginning of the year will maintain housing starts at high levels in the Gatineau area. In fact, their volume will be above the average for the last ten years.

Gatineau residents will be busy in 2009

Moishe Alexander says A closer look at the Quebec part of the Ottawa-Gatineau census metropolitan area (CMA) reveals that the economic fundamentals remain strong for the moment. In the past year, almost 10,000 jobs were created in the area, two thirds of them full-time. This is good news for the real estate market, as it is mainly these jobs that fuel potential demand. Another benefit for the housing market is that the employment gains were registered mostly in the public service, a stable and well-paying sector, as well as in the professional and technical services and trade sectors. Slight decreases were observed, however, in the communications, transportation and construction sectors. Overall, the good performance of the labour market brought down the unemployment rate to slightly less than 5 per cent in the last few months and raised the employment rate to 70.3 per cent in September—the best result in the province.
Moishe Alexander says The economic boom enjoyed by the National Capital Region will continue to stimulate real estate activity in 2009. Employment will grow, but at a slower pace, and will be driven in part by the implementation of the Quebec government’s infrastructure plan, under which the Outaouais region will receive $200 million for roadwork from now until the end of 2009. The health and social services sector will also generate employment, thanks to a 4.5-percent budget increase. In the federal public service, the slowdown of the Canadian economy could make it difficult for the government to balance the budget and cause it to stop in the wave of hiring that began in the area a year ago. The impact of such a measure would be limited, though, as retirements will continue to increase in this sector, leaving the door open to more hiring.

Moishe Alexander says On the external economic front, Gatineau will manage to escape the international turmoil. Given its limited economic trade with foreign countries, the area will be fairly immune to the global ups and downs. In fact, the Outaouais region only has about 70 exporting companies whose products represent just 1 per cent of the overall value of Quebec’s exports of goods. Even if the economic conditions south of the border are barely affecting the Gatineau regional economy, they will have effects on certain industrial sectors, including lumber and pulp and paper, which are currently going through a very difficult period. Finally, the recent weakening of the Canadian dollar will help certain exporting companies do relatively well.

Net migration still positive in the area

Moishe Alexander says Since 2001, the Gatineau region has recorded net positive migration. For the last five years, the annual average number of in-migrants has exceeded 11,000, while the annual average number of out-migrants has remained constant, at about 9,000.  Net migration reached 2,203 people in 2007 and should remain close to 2,200 people in 2008 and 2009.  Newcomers will come mainly from other regions of Quebec and from other countries. The Gatineau area will still attract people from other provinces, particularly Ontario, but will see as many individuals leave.
Moishe Alexander says The wave of Ontarians crossing the Ottawa River that was observed at the beginning of the decade has lost some momentum since 2006. Finally, good employment prospects in the area, compared to other Quebec regions, will keep attracting people to Gatineau in 2009. However, Quebecers settling in the National Capital Region are increasingly opting for the Ontario side of the CMA.  In 2007, more than half of them chose the west bank of the Ottawa River. This trend is pushing down net migration, which would be otherwise higher in the Gatineau area.
Moishe Alexander says Positive net migration, combined with natural population growth, will add about 3,500 people to the Gatineau area population in 2009.  Favourable labour market conditions and a new government policy to progressively increase the international immigration target for Quebec to 55,000 people by 2010 (from the current level of 49,000 people) will help keep net migration positive. Numerous advantages granted to parents of preschool-age children, such as parental leaves, child benefits and the new subsidized child care spaces that will be created over the next four years, will quicken the pace of family formation—families with their own housing needs.

Single-detached houses losing ground to multiple family housing

Moishe Alexander says The impact of the price increases in the last few years and the moderate growth of the Canadian economy will be greater for single-detached housing construction, especially in the upper-range segment. Buyers will be pickier; they will be looking for more affordable homes, such as semi-detached or row houses, or for existing properties. Tighter credit conditions will also reinforce this trend, with Canadian financial institutions now demonstrating more caution before granting credit to lenders. While multiple-family (semi-detached, row and condominium) housing starts will increase by 8 per cent this year, single-detached home starts will only rise by 1 per cent. Despite the expected decline, multiple housing starts will see their market share increase, from 46 per cent five years ago to over 67 per cent in 2009. The faster rise in the average price of single-detached houses caused demand to shift toward more affordable housing types. In 2007, the gap, at the time of absorption, between the average prices of singledetached and semi-detached houses was over $91,000, compared to $60,000 four years earlier. For firsttime buyers, the type of housing that they must choose is more obvious.

Moishe Alexander says As a result of this price gap, multiple housing will stay popular. Semidetached and row home building will remain stable next year, while apartment construction should moderate slightly. It is anticipated that the volume of new condominiums will remain significant in 2009, despite a decrease in the rental housing segment. In fact, over the past few years, the supply of rental housing for seniors has increased more rapidly than the population aged 75 years or older.
The vacancy rate for this type of housing is on the rise, making waiting lists a thing of the past. The anticipated completion of over 400 retirement housing units in 2009 will strengthen this trend and could lead to a temporary reduction in starts. As well, units are managing to be absorbed within less than eight months after completion.  The strong demand for affordable homes will keep the semi-detached housing price curve above inflation.  The price of single-detached houses will climb again in 2009, but at a rate similar to the Consumer Price Index (CPI).
Moishe Alexander says Since 2007, Aylmer has been the sector with the highest volume of starts, and the same will hold true in 2009. In 2001, Aylmer ranked last in terms of housing starts among the three large sectors of the municipality of Gatineau but has since been steadily gaining in popularity. Improvements made to the road network and the redevelopment of many lots along the new major thoroughfare (Des Allumettières Boulevard) are attracting buyers.

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/64287/64287_2008_B02.pdf