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Moishe Alexander’s review of the Moncton Housing 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 Moncton Housing Market

Moishe Alexander’s Review

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

Moncton - Credit stu_pendousmat, Flickr Credit Commons

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

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

Mortgage Rates

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

Residential Construction to Remain Strong in Historical Terms

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

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

Resale Market Resilient in Large Urban Centres

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

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

Vacancy Rates to Decline in Some Provincial Centres

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

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

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Moishe Alexander’s review of the Halifax 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 Halifax CMA Housing Market

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