Economic conditions have substantially improved since the beginning of the year, as the financial crisis is largely over. Governments’ expansionary monetary and fiscal policies allowed for the massive injection of capital that stabilized the financial markets and revitalized the economies.

In Quebec, the economy is showing signs of an imminent recovery, and GDP is expected to grow in 2010. Employment, which tends to start growing again with some lag behind the economic cycle, should pick up slowly during 2010. The number of jobs should fall by 1.3 per cent this year, which should drive up the unemployment rate to 9.5 per cent in the Montréal CMA. After having increased rapidly since the beginning of the year, the unemployment rate has been rising more slowly in the last few months, as employment has stabilized to a certain extent. Even if the worst of the job losses is now over, the labour market will remain anemic, with a small gain in jobs (+0.4 per cent) next year, which will limit income growth and housing demand. In 2010, the unemployment rate should reach 9.6 per cent.

During the period from September 2008 to September 2009, employment in the Montréal CMA declined by 1.1 per cent from the previous twelve months, as around 21,300 jobs were eliminated. The losses were concentrated in full-time jobs
( 1.3 per cent), as part-time jobs rose slightly (+0.1 per cent). As well, the job cuts particularly affected young people aged from 15 to 24 years ( 3.5 per cent) and also people aged from 25 to 44 years ( 1.3 per cent).
The financial sector has been the hardest hit by the job losses for the past year. In the midst of the crisis that shook the financial markets, the companies in this sector cut their workforces by more than 10 per cent in one year. In all, about 15,000 jobs were eliminated in this sector. The improvement of the situation on the financial markets now seems to have stemmed the hemorrhage of jobs in this sector.
A more significant sector in terms of number of jobs, trade–and more particularly retail trade–also registered considerable job losses in the last twelve months ( 7 per cent). In fact, more than 16,000 jobs were eliminated in this sector, but the situation should stabilize over the coming quarters, as economic conditions improve.

After having declined for four consecutive years, employment in the manufacturing sector seems to have stabilized in recent quarters but, with the strong Canadian dollar, the recovery in this sector remains uncertain. The slowdown of the Montréal housing market at the beginning of 2009 sharply affected employment in the construction sector, which had posted two years of solid growth. The massive investments in infrastructure will support employment in this sector in the Montréal area in 2010.

Moishe Alexander’s Review

Highlights

Moishe Alexander says The vacancy rate in the Moncton CMA was lower in 2008 at 2.4 per cent compared to last fall’s results. The largest decline occurred in West Moncton, where the vacancy rate was down 3.5 percentage points to 2.4 per cent. The overall average rent in Greater Moncton was up 2.4 per cent in 2008. Within the region, Moncton City had the largest increase at 2.6 per cent. The highest average rent in Greater Moncton was in Dieppe City at $638. Meanwhile, the average rents in Moncton City and Riverview were slightly lower at $625 and $630, respectively.

Moncton 2008 Rental Market Survey

Greater Moncton Vacancy Rate Declines in 2008

Moishe Alexander says Results from Canada Mortgage and Housing Corporation’s recently completed Rental Market Survey* revealed a lower vacancy rate for the Moncton CMA in the fall of 2008.  In October of this year, there were 234 vacant units in Greater Moncton, down from the 419 vacant units recorded during last year’s survey. As a result, the vacancy rate in Greater Moncton fell from 4.3 per cent last year to 2.4 per cent in the fall of 2008.  The expansion of the local rental universe during the past twelve months has not kept up with demand, resulting in fewer vacant units and a lower vacancy rate.

In 2008, the vacancy rate for twobedroom units, which account for approximately 67 per cent of the local inventory, mirrored the performance of the overall vacancy rate, dropping to 2.6 per cent from last year’s rate of 4.3 per cent. For one-bedroom units, the decline in the vacancy rate was even more substantial, down to 1.5 per cent compared to 4.4 per cent last year.

Within the tri-community area, Dieppe City had the lowest vacancy rate at 1.8 per cent, followed by Moncton City and Riverview at 2.4 and 3.4 per cent, respectively. In the outlying areas of the Moncton CMA, the vacancy rate was a low 0.9 per cent.

Stable Demand and Reduced Construction Push Down Local Vacancy Rate Throughout Greater Moncton

Moishe Alexander says The Greater Moncton area has benefited from positive economic growth during the past decade. During this period, annual employment growth in the area has been between two and three per cent annually. To the end of the third quarter, total employment in 2008 was on a record setting pace. With solid economic fundamentals and rising employment, population growth in Greater Moncton was the most significant among New Brunswick’s urban centres, bolstering housing demand. Despite favorable market conditions for home ownership, demand for rental units in the Moncton CMA persists, as evidenced by the lower vacancy rate in 2008. This year also marked the second consecutive decline in Greater Moncton’s vacancy rate after several years of steady increases dating back to 2001, when the vacancy rate was 1.6 per cent.  The most significant vacancy rate fluctuation in the tri-community area occurred in Dieppe City where the vacancy rate dropped from 4.0 per cent last year to 1.8 per cent in 2008, the lowest in the area.

Substantial population growth in recent years has resulted in steady demand for rental units. However, construction activity has not grown in step with demand. Higher than average starts in 2006 pushed up the vacancy rate last year. Subsequently, apartment starts declined in 2007 to a more typical level for the City of Dieppe.  With no apparent decline in demand, and expansion of the local rental universe constrained by fewer apartment starts, the number of vacant units declined in 2008.

The vacancy rate in Moncton City was identical to the overall rate for the CMA at 2.4 per cent. This was not unexpected, as the rental universe in Moncton City accounts for approximately eighty per cent of the

CMA’s overall inventory. Although population growth in Moncton City lagged behind its neighbor, Dieppe, it has nonetheless remained positive as the region’s dynamic economy continues to fuel economic development and attract people to the area. However, as was the case in Dieppe, new rental unit construction has declined in recent years. In fact, last year, apartment starts in Moncton City were substantially lower than the average annual total recorded during the past ten years. Fewer vacant units combined with steady demand have thus pushed down the vacancy rate from 4.4 per cent last year to 2.4 per cent in 2008.

With fewer new rental projects started in Moncton City last year, the vacancy rates in each of the region’s four separate zones were down in 2008. Both the East and North Moncton zones posted moderately lower vacancy rates in 2008 compared to last year. However, in both Central and West Moncton, this year’s vacancy rate was down considerably from 2007 levels. In Central Moncton, the vacancy rate was halved, down to 2.9 per cent from last year’s vacancy rate of 5.8 per cent.  In West Moncton, a similar decline occurred with the local vacancy rate falling from 5.9 per cent last year to 2.4 per cent in 2008.

In both Moncton City and Dieppe City, the significant decline in the vacancy rate is mainly attributed to reduced apartment unit construction.  Consequently, supply has fallen behind demand and the number of new rental units added to the local inventory has not been sufficient to prevent a significant decline in the vacancy rate.

In both centres, developers have shifted some of their focus to semi- detached homes. In recent years, the popularity of semi-detached homes in the Greater Moncton area has resulted in tremendous growth, with the bulk of new units added in Moncton City and Dieppe City. With semi-detached homes, consumers can obtain a newly-built product with a mortgage payment comparable to the typical monthly rent for a newer twobedroom apartment. Semi-detached homes also offer – in many cases – the option to obtain a customized home and they allow the owner to build equity in their new home. As such, semi-detached units have lured an increasing number of individuals to homeownership. The resulting demand has caused some developers to shift their focus from apartments to semi-detached homes, contributing to a reduction in supply and a lower vacancy rate.

In comparison, the growth in semidetached homes in the town of Riverview has been muted. Prior to this year, rental unit construction in the Riverview area had been proceeding at a relatively conservative pace. However, the new Gunningsville Bridge linking Riverview to Moncton’s downtown core has greatly improved accessibility for local residents. As a result, Riverview has benefited from increased apartment starts in both 2007 and 2008. The resulting expansion of the local rental universe has struck a better balance between supply and demand, limiting the decline in the local vacancy rate.  Although Riverview posted a lower vacancy rate in 2008, the decline was modest compared with Moncton City and Dieppe City, falling from 4.2 per cent last year to 3.4 per cent.

Vacancy Rate Lower in Newer Units

Moishe Alexander says In the Greater Moncton area, as is the case in many urban centres across the nation, the trend in residential construction has been towards larger homes with more amenities and living space. A growing number of consumers choosing to rent are also leaning towards larger, more elaborate units. Based on this year’s rental market survey, the vacancy rate for units built after the year 2000 was a low 0.7 per cent. This was a sharp decline from last year’s vacancy rate of 2.8 per cent. The vacancy rate for units constructed between 1990 and 1999 was equally low at 1.7 per cent. For units built prior to 1989, the vacancy rate increased with the age of the structure and varied between 2.1 per cent and 5.0 per cent. The vacancy rate was also lower in the upper rent ranges, which also confirms the fact that many consumers are seeking newer units with added features. In general, the higher priced units in Greater Moncton tend to be those most recently added to the local rental universe since they generally provide more value added items to consumers. In 2008, the vacancy rate for units where rent exceeded $800 declined to 0.7 per cent from last year’s level of 1.4 per cent. Although these units represent a small part of the overall rental universe in the Moncton CMA, they tend to be absorbed quickly once available, as they generally offer additional amenities such as elevators, laundry hookups, additional storage space, and in some cases underground parking. These extra features have been particularly relevant for empty nesters and retirees who favor the maintenance free living of a rental unit, while wanting to maintain the large living space and amenities associated with a single family home.

Rent Increase Moderate in the Moncton CMA

Moishe Alexander says In 2008, the average rent in the Moncton CMA for all unit types was $626, up from last year’s average of $610. The average rent for two bedroom units, which account for approximately two thirds of the CMA’s total rental universe, went from $643 in 2007 to $656 in 2008. Also, as to be expected, the average rent was the highest in structures built after 2000, at $727 per month. With many renters seeking larger, quality built units with additional amenities, newer units are generally absorbed with minimal delay despite the premium on rent.

Within the CMA, Moncton City had the lowest average rent in 2008 at $625 while Dieppe City had the highest at $638. The Town of Riverview was near the midway point between its two neighboring communities at $630. Riverview also posted the largest year-over-year increase in average rent, with a $22 per month increase from last year’s level of $608. Last year, Riverview had more apartment starts than either Moncton City or Dieppe City. As a result, a larger number of new units were added to the rental universe in Riverview. Owing to a competitive marketplace, newly added units typically offer additional amenities to lure potential renters, applying upward pressure on rents. This phenomenon has contributed to the larger increase in the average rent in Riverview.  The health of the local housing market has also had an impact on overall rents in the Moncton CMA. To the end of October, single-detached housing starts, though lower than last year, remained high in historical terms.  During the same period, the resale market, which is not expected to match last year’s record setting performance, has performed beyond expectations, with a minimal decline in sales compared to last year to the end of October. Favorable conditions, for both purchase and new construction, combined with relatively stable mortgage rates, have helped fuel activity in both the new and existing home market. Consequently, the wide range of housing choices available to area residents has limited the increase in average rent to a modest 2.4 per cent in 2008 (the 2.4 per cent average rent increase is based on a fixed sample methodology).

Availability Rate Declines in 2008

Moishe Alexander says Based on the results from the 2008 Rental Market Survey, the availability rate in the Moncton CMA declined in 2008, with a significant drop from 5.7 per cent last year to 3.1 per cent in 2008. Within the CMA, the availability rate was comparable in both Moncton City and Dieppe City at 3.1 and 2.8 per cent, respectively.  Meanwhile, the availability rate in Riverview was slightly higher at 3.9 per cent.

Since many renters prefer a larger space, the majority of new units added to the rental universe tend to be two bedroom units. With fewer new one-bedroom units added to the rental universe, the availability rate for these units was lower in 2008, declining to 1.8 per cent from last year’s total of 5.4 per cent. For two bedroom units, the availability rate was also lower, with a moderate decline to 3.5 per cent in 2008 compared to 5.7 per cent last year.

Rental Affordability Indicator

Moishe Alexander says CMHC recently introduced a rental affordability indicator for major centres. However, the indicator is not available for the Moncton CMA due to a lack of required data for that centre.

Rental Market Outlook

Vacancy Rate to Decrease Moderately in 2009

Moishe Alexander says Last year, the vacancy rate in the Moncton CMA declined following an upward trend that dated back to 2001. In 2008, the downward trend has been maintained with a further decline in the area’s overall vacancy rate. Although apartment starts in recent years have remained at historically high levels, they have nonetheless been significantly lower than the peak years of 2002 and 2003. Despite the steady construction activity, the vacancy rate dropped to 2.4 per cent in 2008 as demand, bolstered by positive in-migration, outpaced the increase in supply. Apartment starts are not expected to surpass last year’s total in 2008 and will likely post a modest decline this year and a further decline in 2009. Although employment in Greater Moncton has been at record high levels, inmigration is not expected to show significant growth next year. As a result, demand for rental units will likely remain stable over the course of the next 12 months. With fewer apartment starts and resilient demand for rental units, expect the overall vacancy rate to be between 2.0 and 2.5 per cent by the fall of 2009. Meanwhile, expect an average rent increase between 2.3 and 2.8 per cent.

You can find the entire report in PDF format through the following link:
http://www.cmhc-schl.gc.ca/odpub/esub/64407/64407_2008_A01.pdf

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

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

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

Moishe Alexander’s Review:

Housing Market Starting to Ease

Canada - Credit Rick Harris, Flickr Creative Commons

Housing starts: The multi-family sector will keep residential construction strong this year despite a slow down in single-detached activity.  Housing starts this year will remain above the 200,000 unit mark for a seventh consecutive year before dipping to 177,975 units in 2009.

Resales: Rising house prices in recent years have cooled resale activity. Sales of existing homes through the Multiple Listing Service®1 (MLS®) are forecast to fall 13.6 per cent this year compared to last year’s record level, then ease an additional 4.2 per cent in 2009.

Resale prices: Record levels of new listings this year have reduced the upward price pressures that prevailed over the previous six years. As sales of existing homes moderate and new listing continue to increase, the average MLS® price growth this year is expected to ease to 0.3 per cent and 0.1 per cent increase in 2009.

Saskatchewan: The natural resource sector will sustain economic growth in Saskatchewan. Net migration turned positive in 2007, after 22 years of negative net flows. The economy and shift in migration are key factors driving provincial housing starts in 2009.

British Columbia: Economic expansion and job creation will outperform the national average both this year and next. Despite the province’s growing population and job numbers, a well-supplied resale home market will offer more choice to home shoppers and moderate new home demand. By 2009, housing starts will have moved back toward their long term average.
National Housing Outlook:

In Detail

Moishe Alexander says Housing starts this year will remain above the 200,000 unit mark for a seventh consecutive year as slowing construction of single-detached homes is partially offset by growth in multiples. Housing starts will fall 7.1 per cent to 212,188 units in 2008, then dip an additional 16.1 per cent to 177,975 units in 2009. Even with the slow down, new home construction in 2008-2009 will remain strong in a historical context.
The new home market is moderating due to three key factors. First, strong house price growth over the last six years has tempered home ownership demand particularly in Western Canada. Second, the record high levels of new listings has increased the competition from the existing home market and reduced spillover demand.  Third, pent-up demand that built up during the 1990s is nearly exhausted and new home construction will become more aligned with long run demographic demand.
Housing starts will moderate in seven of the ten provinces in 2008, particularly in Western Canada. In Alberta, housing starts are expected to decline by a third compared to the previous year and be more in line with activity in 2001. Higher housing starts this year in Ontario, Saskatchewan and Newfoundland will partially offset the moderating pace in the other seven provinces.
As for 2009, national housing starts are forecast to dip below the 200,000 unit mark.

Higher prices moderate demand for single detached housing

Moishe Alexander says The rising house prices of previous years will moderate single-detached housing starts where activity is forecast to dip below the 100,000 unit mark. Single-detached starts will decrease 20.7 per cent to 94,263 units in 2008, then drop an additional 11.3 per cent to 83,600 units next year coming off of 10 years of high levels. For 2009, Alberta will post higher single-detached housing starts, increasing 3.4 per cent, while the remaining provinces will see singles move lower. In Saskatchewan, single starts are expected to fall 23.3 per cent next year, closer to the recent historical average. A slowdown in single-detached starts will also occur in Ontario, Prince Edward Island, Nova Scotia, Newfoundland, and New Brunswick. Modest decreases in single-detached activity are forecast in British Columbia, Manitoba, and Quebec in 2009.

Multi-family housing increases in popularity

Moishe Alexander says As house prices have moved higher, less expensive multi-family housing (row, semi-detached, and apartment units) has increased in popularity relative to single-detached housing.  This year and next will see multi-family housing starts out number singledetached activity for the first time since 1982. Furthermore, 2008 marks the fifth consecutive year in which multiple starts have surpassed the 100,000 unit mark. Multi-family housing starts are forecast to rise 7.8 per cent to 117,925 units this year, while they are forecast to drop by 20.0 per cent to 94,375 units in 2009. Apartment construction has been growing for 11 consecutive years since bottoming out at just over 23,000 starts in 1996. The resurgence in apartment construction has been pushing multiple starts higher in recent years. Apartment starts are expected to grow 18.1 per cent to 84,725 units in 2008 before declining 21.4 per cent to 66,550 units in 2009.

MLS® sales will ease

Moishe Alexander says Existing home sales activity will ease 13.6 per cent to 452,225 units this year and an additional 4.2 per cent to 433,375 units in 2009 as rising house prices cool home ownership demand.  While sales have been easing throughout the first half of this year, new listings have continued to rise into record territory. Thus, the strong seller’s market that has existed since 2002 have given way to balanced market conditions in most regions across Canada.

Resale markets move back into balance

Moishe Alexander says The strong sellers’ market conditions in recent years were reflected in strong upward pressure on the average price of homes, which increased in the 9 to 11 per cent range in each of the last six years. The first half of this year has seen an easing in MLS® sales and record high levels of new listings; this has brought balance back to the Canadian resale market.  More balanced markets combined with decreased sales activity in the provinces of British Columbia and Alberta, where the provincial average prices are significantly higher than the Canadian average, will cause growth in the average MLS® price to slow in 2008 and 2009.
As more new listings enter the resale market, and sales begin to ease, future price growth will be well below the price increases seen over the previous 6 years. For 2008 and 2009, the MLS® annual average price will rise 0.3 per cent to $306,500 in 2008 and 0.1 per cent to $306,700 in 2009.

Trends Impacting Housing:

Mortgage Rates

Moishe Alexander says The Bank of Canada has cut the Target for the Overnight Rate by a total of 225 basis points since December 2007, bringing the rate down to 2.25 per cent.
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 of 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.

Migration

Moishe Alexander says Net migration (immigration minus emigration) is forecast to increase by 9.2 per cent this year to just over 261,000 people, then remain essentially unchanged in 2009.  Historically high levels of migration will continue to support housing demand.  The majority of newly arrived immigrants initially settle in rental accommodations then move into home ownership over time. Net interprovincial migration to the West, coming at the expense of central Canada, will continue to boost housing demand in these provinces both this year and next.

Employment and Income

Moishe Alexander says Employment in Canada grew by nearly 194,000 people in the first three quarters of this year and was up 1.1 per cent on a year-over-year basis.  Although there is uncertainty, employment growth is expected to be in the 1.4 per cent to 1.8 per cent range this year and in the 0.5 per cent to 1.5 per cent range in 2009. Tight labour market conditions will continue to drive wages and incomes higher.

You can find the entire report in PDF format through the following link:
http://www.cmhc-schl.gc.ca/odpub/esub/61500/61500_2008_Q04.pdf

Moishe Alexander’s Review

Economic Overview:

Economic Growth Eases as Demand for Labour Remains High

Halifax, Nova Scotia - Credit Smudge9000, Flickr Creative Commons

Moishe Alexander says the economic fundamentals in Halifax have been solid over the past few years but the economy is beginning to show signs of change. Economic uncertainty will result in more moderate economic growth and more modest levels of employment growth, in spite of the fact overall employment in Halifax remains very strong. After rising two per cent in 2007, employment reached near record levels midway through 2008. Growth has moderated, however, to 0.7 per cent as of August 2008 and growth is expected to remain near one per cent over the next two years.  The unemployment rate is just over five per cent and is forecast to remain near this level over the next 18 months. Metro Halifax is experiencing a high level of economic activity. Demand for construction labour has been boosted by both commercial and residential construction projects.  Commercial projects include retail developments at Dartmouth Crossing and Russell Lake West, new hotel construction and a new parking facility at the Stanfield International Airport, to name a few.  Residential construction has remained very active in the city with near record levels of units under construction. All told, the demand for construction labour pushed employment in the industry to nearly 15,000, a record level, in the peak summer months of 2008.  Other projects supporting the economic output in Metro Halifax include new aerospace contracts, new defense contracts for upgrading navy ships, ongoing demand for Information Technology professionals and spin off demand for services from nearby oil and gas exploration projects. The shipping industry, however, continues to experience reduced levels of activity at the Halifax ports. In spite of forecasting reduced activity in both residential construction and home sales, sustained economic activity and strong employment will help bolster housing demand at relatively healthy levels in historic terms.

The working population is aging in Halifax at a fairly rapid rate. In 2000, there were approximately 100,000 people between the ages of 25 and 44 employed in the city. At the same point in time, there were only 56,000 people employed between the ages of 45 and 64. As of 2008, the number of people employed in the younger age group declined seven per cent to just over 93,000. Over the same time period, the number of employed people between the ages of 45 and 64 grew to over 81,000 – an increase of 46 per cent. This is the result of several factors including natural aging, strong migration into Halifax and sustained or rising demand for labour in the city.

Interestingly, the unemployment rate in the older age group is significantly lower than the younger group. It was recorded at approximately 3.5 per cent in 2007 compared to 5.2 per cent for the 25 to 44 year old age group.

Through the first three quarters of 2008, inflation, as measured by the Consumer Price Index, was up over three per cent in Halifax following the previous three year average of just over two per cent. Average incomes had been growing at a rate in excess of inflation in recent years in Halifax however the trend stopped in 2008. After growing over five per cent in 2007, average weekly earnings growth moderated to just over two per cent in 2008. The average annual wage in Halifax is just over $36,000 as of August 2008.  Moderate employment growth and wage growth combined with rising home prices will contribute to somewhat reduced levels of housing construction and sales in 2008 and 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.

New Home Market:

New Home Construction to Decline

Moishe Alexander says New home construction levels declined in 2008 and activity will moderate further in 2009. Singledetached home construction has been relatively strong throughout 2008 compared to last year, while multi-residential construction has been weak due to a significant reduction in apartment-style unit starts.

Demand for new single-detached housing increased along with higher demand in the existing homes market in 2008. A record year for existing home sales in 2007 depleted inventory and this encouraged buyers and builders to construct new homes to meet demand. This has driven single starts up 12 per cent through the first three quarters of 2008 compared to the same period in 2007. Expect this demand to soften in the final quarter of 2008 and into 2009. Single starts will decline in the fourth quarter and this will reduce the 2008 total to 1,175 units which is just below last year’s level. In 2009, single starts will decline further to approximately 1,025.

There are several reasons for the expected drop in single-detached construction. The demand for existing homes has cooled and inventory has increased. This will mean that buyers will have more selection in the existing homes market and less need to seek out new construction. In addition, buyers are facing increased economic uncertainty, weaker economic growth and slower employment and wage growth which will result in reduced demand for new housing.

Rising costs of labour, materials and development have been contributing to rising prices for new homes. New home prices have increased by an average rate of ten per cent annually since 2001. The rising costs and the resulting higher prices are also contributing to reduced demand for new single-detached homes. Expect price growth to slow to below four per cent in 2008 and to below three per cent in 2009 with the average single-detached home price reaching $345,000 and $355,000 in 2008 and 2009 respectively.

Multi-residential construction has cooled considerably in 2008 due to fewer semi-detached and apartmentstyle starts. Row housing is one area that actually saw strong growth in 2008 and this is expected to grow nearly 30 per cent by the end of the year. While row housing starts will decline in 2009, the forecast of 165 new units remains well above the historic average. Semi-detached starts however will remain lower in 2008 and stay flat in 2009.

There have been relatively few apartment-style units started in 2008. In fact, 2008 and 2009 will record only 700 apartment style starts per year. The decline in new apartment starts is due at least in part to the overall economic environment and weaker economic growth, but is also due to larger scale projects with longer periods of construction. In 2007, there was a record level of nearly 1,800 apartment units under construction. While this number has decreased in 2008, it remains quite elevated at over 1,500 units. With the reduced numbers of starts, this means that projects have been taking longer to complete. One reason is the scope of the projects but another key reason is demand and competition for labour resulting in various project delays. The demand for labour is further challenged by increasing levels of non-residential construction in Metro Halifax.  Offsetting the weakness in multiple starts is fairly sustained demand.  Demographic trends toward increasing numbers of smaller households will mean demand for smaller residential units will continue.  Furthermore, the rising prices of single-detached homes and the rising overall costs make apartments an attractive alternative.

Resale Market:

Declining Existing Home Sales and Moderate Price Growth

Moishe Alexander says after a record setting year in 2007, MLS® sales have cooled in 2008 and activity will remain subdued over the forecast period. The average price for an existing home in Metro Halifax continues to rise and while price growth will slow it will still remain positive throughout the forecast period. In 2007, MLS® sales grew over 11 per cent but through three quarters of 2008 have fallen over seven per cent. They are forecast to remain down seven per cent in 2008 with approximately 6,450 sales and to fall a further four per cent in 2009 to 6,200. In spite of the decline this year, the number of MLS® sales remains very near previous record levels recorded in 2002 and 2005. Demand for existing housing remains fairly strong, but will moderate over the next 12-18 months. Recent wage growth and overall strong employment levels combined with strong household formation have contributed to demand for housing in general. The existing home market is attractive to many due to the relatively lower prices compared to new construction and the often more established surrounding neighborhoods. In terms of price, the average price of an existing home has increased rapidly in recent years and is now forecast to be $235,000 in 2009. For a new home, however, the average price is forecast to be $355,000 in 2009 which is more than 50 per cent higher than an average existing home.

Over the forecast period, existing home sales will continue to face the challenges seen in 2008. Sales have fallen from record highs due to slower economic growth which has resulted in slower employment and wage growth. Rising home prices and rising housing-related costs are contributing to weaker demand as is some general economic uncertainty.  For these reasons, sales will decline in the medium term.

After doubling in the past ten years and averaging nearly eight per cent growth in the past five years, existing home prices will grow more moderately over the forecast period.  Expect a further six per cent growth in 2008 to $228,000, while in 2009 price growth will slow to three per cent to $235,000 due to lower demand and sales.

An expected increase in the number of listings will also put downward pressure on price growth as potential buyers find more stock to choose from. New listings will increase over four per cent in 2008 and a further one per cent 2009.  These increases follow a four per cent decrease in new listings in 2007. Active listings have increased even more with a 14 per cent increase in August 2008 compared to August last year.

With listings on the rise and price growth easing , the overall resale market has been trending away from sellers’ market conditions and moving more into balanced market conditions over the past couple of years. Expect this trend to continue and the possibility of shifting to buyers market conditions late next year.

In spite of rising inventory and more modest levels of sales, the average time to sell a home has decreased in 2008 from 89 to 84 days-on-market.

Rental Market:

Vacancy Rates and Rents to Rise in Short Term

Moishe Alexander says expect apartment supply to increase over the next 12 to 18 months as near record levels of residential units under construction complete or near completion. Before rising to 3.2 per cent in 2009, expect vacancy rates to drop below three per cent in 2008. The current year drop will be due to delays in the availability of units under construction, whereas in 2009 these new units will be added to the supply and exert upward pressure on vacancy rates. During the same forecast period, expect average rents to rise in response to rising construction and operating costs. Average rents will rise just in excess of the rate of inflation at approximately three per cent both this year and next.

In 2007, there was an average of nearly 1,800 apartment units under construction. While this figure has declined to approximately 1,500 units, it stands as the second highest level ever of units under construction. This in turn will result in hundreds of new rental units being added to the market and will put upward pressure on vacancy rates in the medium term.

Offsetting the increase in supply, will be continued demand for rental units. Demographic shifts towards higher numbers of smaller families will continue to impact demand for small units and apartment living. The rising cost of new and existing homes will also make rental units an attractive alternative.

Further offsets to the impact of increasing supply will be weaker employment growth and weaker wage growth. As employment and wage growth moderate, demand for rental units will remain strong as apartments will be seen as an alternative to homeownership.  Continuously rising costs of labour, materials and development will contribute to higher construction costs for builders while higher prices for heating fuel and utilities will contribute to higher operational costs for landlords. These rising costs will in turn lead to rent increases in excess of the rate of inflation over the next 12 to 18 months. An average two-bedroom unit will rent for approximately $830 in 2008 and rise to $855 in 2009.

You can find the entire report in PDF format through the following link:
http://www.cmhc-schl.gc.ca/odpub/esub/64267/64267_2008_B02.pdf