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Moishe Alexander’s review of the Kitchener and Guelph 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 Kitchener and Guelph Housing Market

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

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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 Canada 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 Canada Housing Market

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