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

February 23, 2009 — Moishe Alexander’s review on how the current world economy and Canadian economic turndown is affecting the Moncton Rental Market

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

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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

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Moishe Alexander’s review of the Saskatoon CMA Housing Market and CMHC Outlook Report fall 2008

February 18, 2009 — Moishe Alexander’s review on how the current world economy and Canadian economic turndown is affecting Saskatoon CMA Housing Market

Moishe Alexander’s Review:

New Home Market

Single starts slip in 2008 but maintain historically high levels

Saskatoon, Sask. - Credit Stephen Glauser, Flickr Creative Commons

Moishe Alexander says Saskatoon single-detached housing starts will see a slight decline in 2008, slipping to 1,250 starts, 16 per cent less than the 1,485 starts seen in the market of 2007. In 2009, our forecast calls for 1,000 single-detached starts as the market responds to reduced demand, rising inventories, and competition from the resale market. Price escalation from previous years will be a dominant factor leading demand lower. Notwithstanding the expectation of a reduction in starts, this outlook is above the average number of starts seen in the 10 years prior to 2007. The momentum in single starts which built up in 2007 continued into the first five months of 2008 and is slowly abating in the fall.  Investor money has now evaporated.

Wide choice on the resale side is diverting demand from new construction.  Builders are turning to the task of completing and selling the homes presently under construction. Job growth, wage gains and positive net migration will continue to support new housing and ensure a gradual cooling of the market. In August, year-to-date single starts are close to even with last year at this time but monthly starts have been lower than last year for the past three months.

Bedroom communities attracting home buyers

Moishe Alexander says to the end of August, areas surrounding the city of Saskatoon have captured just over 30 per cent of the total housing starts compared to a 26 per cent share at the end of August 2007. The bulk of these starts have occurred in the town of Warman with 247 starts. Total housing starts in Warman include 111 apartment units. Looking at only single-detached units, Warman again captured the bulk of the starts with a 12 per cent share of the total single housing starts in the CMA. Warman is a popular choice for homebuyers because of its close proximity to employment opportunities offered in the north end of Saskatoon.

Single-detached absorptions are climbing as builders complete units and homebuyers occupy these new homes. To the end August, absorptions of units started in 2007 are up 37 per cent compared to this time in 2007. Average absorptions have topped 100 units monthly compared to an average of 84 units monthly throughout 2007.
At the present rate of absorption, the supply of single units at various stages of construction as well as complete and unoccupied is sufficient to last about 12 months. This is down slightly from the August 2007 figure of 13 months. The combined effect of slower starts and increased absorptions has reduced the total supply on a month over month basis over the last three months.

Average price to reach $380,000 in 2008 and $415,000 in 2009

Moishe Alexander says at the end of 2008, we forecast the average price of a new single-detached home will be $380,000 followed by a nine per cent increase to $415,000 in 2009. Expect price increases to moderate in 2009 as increased competition from resale housing takes hold and construction moderates. Labour costs combined with higher land development costs are the primary contributors to the upswing in average price thus far. In recent months, however, labour shortages have tapered off with the recent decline in single-detached starts. The continued moderation in starts in 2009 will result in a weaker pace of price growth moving forward.
Currently, the year-to-date average price of a new single-detached home is over $350,000, up close to 33 per cent over the average price recorded in the first eight months of 2007. There is a shift upwards into higher price ranges. All price ranges above $250,000 have seen an increase in the number of absorptions while lower price ranges have seen declines. So far, in 2008, the $300,000 to $349,999 range has captured most of the absorptions, reaching 24 per cent of the market.  In the $300,000 to $349,999 price range, year-to-date absorptions of 195 units are 150 per cent over last year at this time.

Saskatoon New House Price Index decelerates in 2008 and 2009

Moishe Alexander says Statistics Canada’s New House Price Index (NHPI) measures the increase in the price of a house where the detailed specifications pertaining to each house remain the same between two consecutive periods. We expect gains will be more subdued than 2007 as we move forward. Our forecast calls for a 22 per cent increase in the total NHPI in 2008 followed by a modest 1.5 per cent rise in 2009.

According to homebuilders, the 2007 increases were a reaction to the rapid escalation of existing home prices. Demand had shifted from resale housing and builders raised their prices as supply dwindled.  These market conditions have now reversed course and our forecast anticipates a reduction in price gains as the market softens. A 22 per cent increase in 2008, with a further slowdown in price gains to 1.5 per cent in 2009, reflects these changes in the market.

Multi starts slow in 2009

Moishe Alexander says Momentum will carry multiple starts (including semi-detached, row, and apartment units) to 1,150 units in 2008 as builders exceed the pace recorded in 2007. A rising inventory will force developers to slow production to 800 units in 2009.

To the end of August, multiple starts are up 45 per cent compared to this time in 2007. Apartments have dominated production in 2008 with 589 units started; more than double the 2007 starts level seen at this time last year. Most of these apartments are condominiums designed for seniors and offer such features as elevators and underground parking.  However, new markets have opened for homebuilders involved in row housing condominium development.  Due to the rising price of singledetached housing, some first-time homebuyers have turned to the row and semi-detached dwelling style as a more affordable homeownership alternative. Expect row housing to be the second most popular form of new multiple housing, after apartments in 2009.

Supply of multiple units reaches historically high levels

Moishe Alexander says as of August this year, total supplies of multiples were in excess of 1,400 units at various stages of construction or completed and unoccupied. This figure is more than 55 per cent higher than last year at this time.  As multiple starts will remain at an elevated level in 2008, we expect the supply of multiples to remain in the 1,000-unit range throughout this year with an eventual decline in 2009 as starts fall off and units are completed and absorbed. At current rates of absorption, the supply of all types of multiple units is sufficient to last almost 29 months, close to the 28-month supply seen in August 2007.

Most of the multi supply is in the construction stage with apartment style units dominating the mix. The number of apartments under construction is now almost double the number seen at this time in 2007.  There are just over 360 row units in the construction stage.

Industry reports abundant supply of land

Moishe Alexander says Saskatoon land developers have reported there are 1,850 lots at various stages of development within city limits and an additional 1,200 lots in communities surrounding the city. According to developer’s estimates of land absorption rates, this represents a three-year supply.  Given the length of time required to plan and develop raw land, this suggests a balanced market situation.  However, shortages may develop for lots in more desirable subdivisions or price ranges.

RESALE MARKET

Resale market sales fall off in 2008 and 2009

Moishe Alexander says Saskatoon resales will decline almost 20 per cent by the end of 2008 with a further 11 per cent reduction occurring in 2009. Notwithstanding 2008’s forecast decline, resales will still be in excess of the ten-year average of 3,170 sales. Saskatoon’s resale market is coming off a surge of activity in 2007 that saw sales increase almost 30 per cent over 2006 and resulted in the highest number of resales ever recorded.  By the end of August 2008, year-todate sales were down 18 per cent, while seasonally adjusted monthly sales were down 33 per cent compared to the same month in 2007.

Investor demand played an important role in the 2007 upswing but the bulk of this money is now absent.  The industry reports that sellers are holding firm at prices that were common in 2007. Buyers, on the other hand, have adopted a wait and see approach, hoping for a price adjustment following the steep price gains of the last two years. In-migration, rising weekly earnings and other favourable labour market conditions will support demand for resale housing but the sales trend is clearly slowing.

Saskatoon will see 8,500 listings processed in 2008 followed by 7,000 new listings throughout 2009. In August, year-to-date new listings were up 41 per cent compared to last year at that time. New listings are on the rise as seniors move into newly constructed condominiums and others take possession of their new single-detached units. In addition, some investors are now liquidating their holdings in the resale market. Some of these newly listed properties are recently completed new homes. Thus, builders are finding they are competing against their own product. Faced with this challenge, builders will limit price increases on future building contracts.
The combination of the escalation in new listings and slow sales has led to high active listing inventories. Active listings have more than doubled over the August 2007. Although new listing activity will slow in 2009, we expect active listings will remain elevated moving forward.

A further result of record listings and slow sales is a decline in the sales-to-active listing ratio to 8.3 per cent. The seasonally adjusted trend is down more than 30 percentage points on a year-over-year basis and down close to three percentage points on a month-over-month basis.  These low ratios mean that relatively few buyers face a large number of homes available for purchase. The result is a market that favours the homebuyer.

Average resale price to increase 23 per cent in 2008 and 1.9 per cent in 2009

Moishe Alexander says our forecast calls for average price to reach $287,000 in 2008 and approach the $300,000 mark in 2009 as price gains cool from the 2007 pace. Higher listings and buyer resistance to higher prices will result in the relatively weaker price gains compared with 2007 for the balance of 2008 and 2009. The forecasted increase of 23 per cent in 2008 will be modest by comparison with the 45 per cent jump in 2007 but will still be one of the highest gains on record.

At the end of August, year-to-date average price is still on the rise with a year-to-date increase of 27 per cent.

Seasonally adjusted average price is up 15 per cent compared to the August 2007 figure but down slightly from the July 2008 seasonally adjusted average price.

RENTAL MARKET

Vacant apartments scarce in 2008 and 2009

Moishe Alexander says after falling to a low of 0.6 per cent in 2007, CMHC is forecasting an increase in the average vacancy rate in 2008 to two per cent followed by two per cent in October 2009. The average vacancy rate will vary widely across the city but all areas will see a tight rental market. The April rental market survey found there was an average vacancy rate of less than one per cent in the Saskatoon Census Metropolitan Area. Our forecast of two per cent average vacancy in October 2008 assumes there will be a decline in demand due to tenants moving to home ownership, lower in-migration and tenant households “doubling-up” in the face of mounting rents. In 2009, these conditions will persist, resulting in two per cent average vacancy rate in that year also.

Rents continue to rise in 2008 and 2009

Moishe Alexander says strong rental demand has given property owners and managers an opportunity to maximize rental income. Following an $85 increase to the monthly two-bedroom rent in 2007, our forecast calls for an increase of $167 in the two-bedroom monthly average rent in 2008 and a modest increase of $15 in 2009 bringing the average rent for a twobedroom suite to $860 by October 2008 and $875 in October 2009.  The re-introduction of renovated suites will contribute to the rental hikes. We expect the increase in average rent to slow in 2009 as household income begins to limit further rent hikes.

Both the City of Saskatoon and the Province of Saskatchewan have programs in place to encourage the building of market rental and affordable rental housing.

ECONOMIC OUTLOOK

Employment growth restricted by scarcity of workers

Moishe Alexander says CMHC is forecasting employment gains of 2,300 jobs in 2008 followed by 1,800 in 2009. These increases are considerably more subdued than the surge in employment seen in 2007, which saw 7,500 jobs created.  The escalation in housing prices relative to other western cities will slow in-migration and restrict labour force gains thus limiting employment growth. Unemployment will see a slight increase in 2008, yet remain low by historical and national standards.  Expect the unemployment rate to slip back to four per cent in 2009.  At the end of August, Saskatoon’s goods sector has dominated employment growth. Mining as well as oil and gas extraction have done the heavy lifting. Manufacturing and construction have also contributed.  Service sector employment has fallen off compared to the hectic pace of hiring seen in 2007. Retail trade and education employment numbers have been slipping since the beginning of 2008. Full-time employment has seen an increase so far in 2008 while parttime employment has been sliding.  Both younger and older age groups have benefitted from employment gains so far in 2008. There are early indications that the youngest age group may be seeing declines later in the year as this is the group most commonly associated with part-time work and the service sector.

Building permits show residential construction cooling

Moishe Alexander says the July year-to-date dollar volume of all types of building permits has seen a 51 per cent increase in 2008 compared to this time in 2007. The largest increases have occurred in the industrial sector followed by growth in the commercial sector.  The institutional and governmental permit volume saw the third highest increase. Although residential permits dollars have seen an increase of close to 13 per cent this year, the gains are far behind the 133 per cent increase recorded at this time in 2007. Considering the unit count of building permits issued to July, there has been a 5.8 per cent decline in total residential permits issued so far in 2008. Single-detached permits are up 2.2 per cent but multiple unit permits are down 1.3 per cent. Conversion permits are also down.

You can find the entire report in PDF format through the following link:
http://www.cmhc-schl.gc.ca/odpub/esub/64351/64351_2008_B02.pdf