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

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

Moishe Alexander’s Review

Highlights

Moishe Alexander says After remaining unchanged for three years at 2.8 per cent, the overall vacancy rate in October 2008 fell to 2.4 per cent. Little new construction and fewer renters moving to homeownership led to the market tightening. The rental market tightened for both small and large apartments. Rents for townhouses and apartments surveyed in both 2007 and 2008 grew by 2.3 per cent, similar to the rate of inflation.

Demand

Drop in Peterborough Vacancy Rate

Moishe Alexander says After holding steady for the past three years at 2.8 per cent, the vacancy rate for privately initiated apartments in buildings of three units or more in the Peterborough Census Metropolitan Area (CMA) dropped to 2.4 per cent in October 2008. The decline was due to an increase in demand.

Moishe Alexander says Demand for rental acommodation has been affected by the decreased demand for homeownership resulting from recent price appreciation, and some moderation in the labour market, particularly for youth.

Few Renters Moving to Homeownership

Moishe Alexander says The main reason the rental market tightened was that fewer renters became first time buyers. The movement into the rental market by youth and other households slowed, but not as much as the movement of renters into home ownership. Because of the appreciation of home prices in the existing home market, some prospective buyers have delayed a move to ownership. Owning has become less attractive, even for families with children, so some families are waiting for the market to become more accessible before they become homeowners. As a result, the vacancy rate  decreased, especially for three bedroom apartments.

Weaker Employment Offsets Demographic Support for Rental Demand

Moishe Alexander says Although the number of youth increased, their movement into the rental market has slowed. The population aged between 15 and 24, an age group typically associated with rental demand and household formation, increased from about 13.5 per cent of the population to about 15 per cent between the 2001 and 2006 census in Peterborough CMA.  At the job market level, service sector employment is growing. Overall part time employment has increased much faster than full time employment, although both are increasing. However, among 15 to 24 year olds, a sharp decrease in part-time employment offset the gains in full-time employment in 2008 and total employment was down. Given the labour market moderation, fewer youth moved out of their parental homes into rental accommodations.

More Rental Demand for Large and Small Size Units

Moishe Alexander says Less movement towards ownership is tightening the market for threebedroom apartments. The vacancy rate edged down to 1.4 per cent from 3.5 per cent in October 2007, while the supply increased by 37 units. Bachelor units showed the same trend. The vacancy rate for these smaller units fell to 1.5 per cent from 3.7 per cent. This decline is a result of an increase in demand which was greater than the supply increase. Bachelor apartments make up 3.2 per cent of the total rental universe. With this small portion, any change in vacancies can have a substantial impact on the vacancy rate for this segment.

For two-bedroom apartments, demand did not change significantly from last year. Changes in both demand and supply led to a drop in the vacancy rate from 2.7 per cent to 2.3 per cent.

Vacancy Rates in Older Buildings Decline

Moishe Alexander says Demand has shifted to older buildings which account for 17.6 per cent of the total stock of rental housing.  The vacancy rate in older buildings built in 1940 and before decreased from 5.8 per cent in October 2007 to 1.8 per cent in October 2008.  These buildings offer spacious units at lower rents. The average rent in this building segment is $674, compared to $858 for newer buildings and in particular those built after 1990. The vacancy rate in buildings built after 1990 started to trend up and reached 2.4 per cent in October 2008 from 1.7 per cent last year.

Apartments With Lower Rents in High Demand

Moishe Alexander says Despite the popularity of high end apartments, affordable rental units have become increasingly attractive.  The demand for apartments with rents between $600 and $699 has jumped up. The vacancy rate fell to two per cent from the 3.5 per cent registered in 2007. The vacancy rate for units with rents in excess of $1,000 moved down from 0.9 in 2007 to 0.7 in 2008.

Slight Decline in Availability

Moishe Alexander says The availability rate is the percentage of apartments that are either vacant or for which the existing tenant has given or has received notice to move out and for which a lease has not been signed by a new tenant. The availability rate indicates the percentage of apartments available to market to prospective tenants. In line with the vacancy rate, the availability rate for townhouses and apartments fell to 4.2 per cent this year, down from the 4.5 per cent registered in 2007. There were relatively fewer bachelor, one bedroom and three bedroom apartments available for rent in October 2008. In contrast, the availability rate for two bedroom apartments rose to 4.4 per cent in October 2008 from 3.8 per cent in the same period last year.

Softer Demand for Townhouses

Moishe Alexander says Demand for townhouses decreased in contrast to 2007 when it had increased. The vacancy rate went up to 2.8 per cent from 2.2 per cent in October 2007. Last year’s tighter demand for this type of dwelling pushed the rents up by 4.5 per cent and consequently made them less attractive this year.

Rent Increase Steady

Moishe Alexander says CMHC measures annual changes in average rents based on a method that compares rental structures that were common to both the 2007 and 2008 surveys. By eliminating the impact of structures coming into or being removed from the rental market universe, rent fluctuations due to changes in market conditions can be analyzed.

Moishe Alexander says Despite the lower vacancy rates, the growth in average rent for townhouses and private apartments was unchanged at 2.3 per cent, in line with the increase of 2.2 per cent of the consumer price index excluding gasoline in the 12 months to September of 2008. However, this rate is above the Residential Tenancies Act Guideline for 2008 of 1.4 per cent. Rent increases ranged from two per cent for two-bedroom units to 5.4 per cent for bachelors. Since bachelors account for less than four per cent of the rental stock, the high increase did not have much impact on the total average rent change.

Rental Market Outlook

Moishe Alexander says Appreciation of house prices and an increase in part time employment have made renting the preferred option for many households. A combination of slow ownership demand and low rental construction will push the vacancy rate down further in 2009.  Consequently, the overall vacancy rate is expected to drop down to 2.2 per cent in October 2009 from 2.4 in 2008 and at the same time the rent for a two-bedroom apartment will inch up to $870.

You can find the entire report in PDF format through the following link:
http://www.cmhc-schl.gc.ca/odpub/esub/65776/65776_2008_A01.pdf

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

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

Moishe Alexander’s Review

Highlights

Moishe Alexander says Kingston’s vacancy rate for apartment buildings with at least three units dropped from 3.2 per cent in 2007 to 1.3 per in 2008. As a result the local rate is now at its lowest level since 2002, when the rate was 0.9 per cent. The matched sample average rent for two bedroom apartments in existing structures in Kingston was up 3.1 per cent from last year. Cost gap between owning and renting has widened and along with economic uncertainty is contributing to lower vacancies.

Kingston’s Vacancy Rate Posts Largest Decline Among Ontario Centres

Moishe Alexander says According to the biannual rental market survey conducted in October 2008 by Canada Mortgage and Housing Corporation (CMHC), the Kingston Census Metropolitan Area (CMA) average vacancy rate in privately initiated rental apartments with three or more units dropped from 3.2 per cent in 2007 to 1.3 per cent in 2008. As a result, the local rate is now the lowest vacancy rate since 2002 when the rate was 0.9 per cent.  Of the 15 CMAs surveyed in Ontario, Kingston had the third lowest vacancy rate behind Greater Sudbury (0.9 per cent) and Barrie (1.2 per cent). This tightening rental market in Kingston is primarily due to the fact that while demand has been increasing, the supply of rental units has remained relatively flat.  There was no new rental construction in Kingston this year.

A number of factors have increased rental demand putting downward pressure on vacancy rates. First, according to recent surveys conducted by CMHC on homebuying intentions, fewer renter households have been in the market planning a home purchase in recent years. This story was supported by lower ownership sales in Kingston throughout 2008. In essence, the weaker local economy in Kingston has slowed the movement of renters into homeownership market. In fact, healthy job growth in the lower paying service employment sector helped support demand for rental accommodation.  Generally, lower earning households possess a weaker financial capacity to successfully generate downpayment for a new home.  Another factor is increasing enrolment at both Queen’s University and St. Lawrence College, as students are traditionally a strong driver of rental demand. On the supply side, between January and October 2008, there were only 54 rental units absorbed into the Kingston rental market, down from the 155 units recorded during the same period last year.

Downtown Vacancy Rate Declines

Moishe Alexander says The areas of “old” Kingston (Zone 1) registered the second lowest vacancy rate in 2008, indicating that apartments remain harder to find in the core than in the suburbs. The average vacancy rate in the down-town area dropped from 4.3 per cent in 2007 to 1.2 per cent in 2008.  During the second half of 2008, fulltime employment among youth has been particularly strong. Generally, the youth population tends to occupy entry-level rental accommodation typically closer to shops and schools. Therefore, the decline in vacancies in downtown Kingston, particularly among older rental units (built between 1960 and 1974) and less expensive rental units, is evidence of vibrant youth-driven demand in this zone.

In Zone 2 (which encompasses Polson Park, Calvin Park and Portsmouth Village) the vacancy rate retreated again to 0.9 per cent, down 0.4 percentage points from the previous year. For two consecutive years, this zone has registered the lowest average vacancy rate across the entire Kingston CMA.

Meanwhile, in suburban Zone 3 (Kingscourt, Rideau Heights, Glenarden, and Strathcona Park) the vacancy rate declined 1.6 percentage points to 1.7 per cent from October 2007. A similar drop in average vacancy rate occurred in Zone 4 where the rate fell from 4.4 per cent in 2007 to 1.9 per cent in 2008.

High-End Rental Units Becoming More Popular

Moishe Alexander says An emerging trend in the Kingston CMA rental market is the declining vacancy rates at high-end rental units.

The lower priced units recorded the highest vacancy rates in the CMA.  With strong overall employment growth year-to-date, renters in October showed higher preference for affluent rental units. Furthermore, the proximity to public services tends to support the demand for these up-scale rental units.

Kingston’s Average Rents Trending Up

Moishe Alexander says Tighter Rental Market Conditions translated into average rent increases of between 1.9 and 3.5 per cent across all bedroom types and zones.  This was different from last year’s experience, when some areas recorded small declines. Hence, the average rent for a two-bedroom apartment in existing structures increased by 3.1 per cent, well above the 2.6 per cent increase in the overall cost of living index.

Interestingly, however, the October 2008 survey shows both the rent increases and vacancy rates in Kingston exhibited similar trend among all the zones. Although the area of Zone 4 remains home to the highest rents, there appears little difference between the downtown and outlying areas.

Rental Market Outlook

Moishe Alexander says As a result of increased concern among potential first time home buyers about the Canadian economic outlook, coupled with no new additions of purposed built rental stock , the apartment vacancy rate in Kingston is expected to remain relatively low at 1.5 per cent in October 2009. The average two-bedroom rent is projected to advance by 2.8 per cent. Although an overall slow job market is anticipated for 2009, job creation among the lower paying sectors will remain strong and contribute to additional tightness in the rental market.

You can find the entire report in PDF format through the following link:
http://www.cmhc-schl.gc.ca/odpub/esub/64671/64671_2008_A01.pdf

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Moishe Alexander’s review of the Peterborough 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 Peterborough Housing Market

Moishe Alexander’s Review

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