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February Housing Starts

The seasonally adjusted annual rate1 of housing starts reached 196,700 units in February 2010. This is an increase from an annual rate of 185,400 units in January 2010, according to Canada Mortgage and Housing Corporation (CMHC).

Posted by Moishe Alexander

“The gain in February housing starts was concentrated in the multiple starts segment, particularly in Toronto,” said Bob Dugan, Chief Economist at CMHC’s Market Analysis Centre.

The seasonally adjusted annual rate of urban starts increased by 9.0 per cent to 179,100 units in February. Urban multiple starts increased by 19.1 per cent to 89,900 units while single urban starts increased by 0.5 per cent to 89,200 units.

February’s seasonally adjusted annual rate of urban starts increased by 28.6 per cent in Ontario, by 14.3 per cent in Atlantic Canada, by 10.8 per cent in the Prairie region and by 8.0 per cent in British Columbia. In Quebec, the seasonally adjusted annual rate of urban starts decreased by 14.1 per cent.

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Moishe Alexander’s review of the Ottawa 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 Ottawa Rental Market

Moishe Alexander’s Review

Highlights

Moishe Alexander says Ottawa’s vacancy rate for apartment units fell to 1.4 per cent, the lowest level since 2001. Robust rental demand pushed up average rents faster than the rate of inflation. Increased immigration, along with slower rental construction, will lead to further tightening of the rental market in 2009.

Rental Market Survey Vacancy Results

Moishe Alexander says Rental market data released by CMHC’s latest survey confirmed that the October vacancy rate in the Ottawa Census Metropolitan Area (CMA) experienced tightening during 2008. The proportion of privately initiated apartments vacant in structures with three or more units declined to 1.4 per cent in this year, down from 2.3 per cent in 2007.  The recent level of rental market activity in Ottawa has been mostly driven by strong demand growth.  Rental demand during 2008 was sustained by a stable economy with factors such as strong young adult employment growth, rising costs of homeownership and high migration levels being particularly influential.

Factors Supporting Rental Demand

Higher Homeownership Costs

Moishe Alexander says Ottawa’s economic fundamentals are very strong. In 2008, the labour market strength was supported by a solid trend in job creation and, as a result, Ottawa’s workforce enjoys one of the highest average incomes among Canada’s major cities. However, although strong fulltime employment supports a high level of homeownership demand, record high prices and growing economic uncertainty dampen demand for ownership housing. As a result, some of Ottawa’s potential homeowners have decided to stay in their rented units and postpone their purchase intentions.

Strong Young Adult Employment

Moishe Alexander says Among the various demographic groups affecting the rental market, the young population between the ages of 18 to 24 years old has traditionally been a strong source of demand, since they usually lack the financial means to secure a mortgage.  Consequently, their success in the labour market has a crucial influence on their propensity to move out of the parental home and into the rental market.

Younger adults reached a 20-year record high level of full-time jobs, increasing by 3.8 per cent from January to September, when compared to last year. Therefore, rental demand among this age cohort has remained strong.

Increasing International Migration

Moishe Alexander says International migration flows in Ottawa have been growing at historically high rates, offsetting the weaker inter- and intra-provincial trends in recent years. During the intercensal period of 2001 to 2006, the Capital City received an all-time high annual average in-flow of six thousand immigrants. It is important to note that from arrival it takes an immigrant household between 5 to 7 years to purchase a home which implies greater rental demand.  Interestingly, Ottawa’s growing recent immigrant population was not only younger than the Canadian-born population, but was also on average more educated than their previous immigrant counterparts. Such qualities have allowed recent immigrants to perform well in the labour market, encouraging them to stay in the Capital City. This provided a boost to rental demand during 2008.

Sources of Rental Supply

Slow Rental Construction

Moishe Alexander says On the supply side, the purposebuilt rental construction trend has eased since the peak reached in 2002. The new supply of purposebuilt rental units during the first ten months of 2008 exceeded the average for the past five years only mildly, with just 142 new units built.  At the same time, apartment completions in the 12 months ending in June 2008 were up by only 11 units compared to the same period last year. Indeed, the rental apartment universe has remained virtually unchanged since 2004, which contributed to lower the vacancy rate.

Increase in Condominium Apartment Rentals

Moishe Alexander says Rental market activity in the Ottawa CMA purposed built market is increasingly competing with the supply of condominium apartments rented out by investors. Compared to last year, an additional 313 condominium apartment units were offered for rent in 2008, equivalent to an increase of 8.4 per cent. As a result, the supply of rental units within this segment has reached over 19 per cent of the growing condominium apartment universe in 2008. The total number of condominium apartments rented out comprised 6.7 per cent of the purpose-built apartment rental market supply.

Fewer Secondary Rental Market Units

Moishe Alexander says In 2008 the estimated number of households in the Secondary Rental Market declined by 2.8 per cent, with 35,433 households renting dwellings not covered by CMHC’s Rental Market Survey.1 This total number of housesholds comprises 35% of persons renting in Ottawa.The only property type that gained popularity among renters was single-detached homes, up almost 24 per cent from 2007. Although other Secondary Rental dwellings such as semi-detached, rows, and duplexes still represent 64 per cent of the market, they attracted almost 9 per cent fewer households than last year.

Apartment Rental Market

Vacancy Rate Falls to 1.4 Per Cent

Moishe Alexander says As a result of increasing demand for rental dwellings and slow rental construction, the Rental Market in Ottawa CMA experienced tightening, with widespread reductions in the vacancy rate across all apartment sizes. As well, all rental market zones experienced lower vacancy rates than last year, with New Edinburg/Manor Park/Overbrook and Westboro South/Hampton Pk/ Britannia registering the lowest in Ottawa, both with 0.7 per cent.

Rent Increases Faster than Inflation

Moishe Alexander says The fixed sample average rent in the Ottawa CMA, which effectively compares rent for apartment units surveyed both in 2007 and in 2008, increased by a solid 3.6 per cent. This increase was widespread across all bedroom types.

High Growth in Rent for 3-Bedroom Apartment Units

Moishe Alexander says A significant acceleration in rent increases was experienced by the less common, more expensive three bedroom apartment units, which grew by four per cent from last year.  Such a jump in average rents reduces the cost gap between three bedroom apartments and homeownership.

One reason behind this trend is the growing demand from households seeking a more comfortable lifestyle comparable to that of the less affordable single-family home. Among these households, we find immigrants who tend to have larger families and are more likely to live with their extended family than Canadian born households, thus requiring bigger accommodations.  The vacancy rate for this segment dropped to 1.8 per cent, down from 2.8 per cent in 2007.

Two Bedroom Apartment Rent Exceeds Inflation

Moishe Alexander says Households looking to rent a typical two-bedroom apartment during 2008 faced less choice and higher average rents than a year earlier. The vacancy rate for this apartment type tightened from 2.3 per cent in 2007 down to 1.5 per cent this year, driving the average rent up 3.7 per cent from a year ago.

Popularity of these type of apartments is driven by the fact that over 40 per cent of them are located in popular areas such as Altavista/Hunt Club, Downtown, Westboro/Hampton/ Brittania and Glebe/Old Ottawa South.

Rental Demand Stronger in Regions Close to the Core

Although most regions have been tightening steadily since the 2004 peak, the trendier and more centric regions of Sandy Hill/Lowertown, Glebe/Old Ottawa South, and New Edinburg/Manor Park/Overbrook were among the areas with stronger rental activity in 2008. These rental zones experienced a combination of lower than average vacancy and rent increases above the city average.  Interestingly, the average rent in the area of Gloucester/Cumberland remained relatively flat, even though it experienced one of the most significant drops in the vacancy rate (from 2.6 to 1.1 per cent) and had the second lowest number of units available for rent. In contrast, following previous years’ trend, the less popular area of Vanier offered the cheapest average rent and the highest rate of vacancy.

Lower Vacancy Among Newer and Bigger Structures

Moishe Alexander says Even though vacancy rates declined across all bedroom types and regions, significantly tighter conditions were experienced in trendier and more attractive segments of Ottawa’s Rental Market. Apartment units in newer structures built after 1975 were particularly popular among renters, especially those built after the turn of the century. This type of apartment saw their vacancy rate drop sharply from 2.5 per cent to 1.2 per cent in 2008 and their average rents increase by 5.7 per cent from last year.

Similarly, bigger structures were particularly attractive among households seeking better services and amenities. This was especially true for rental buildings with 100 to 199 units, which saw their vacancy rates cut significantly from last year to just 1 per cent. Thus, monthly rents increased by 4.7 per cent from last year.

Townhome Rental Market

Vacancy Contracts to 2.2 Per Cent

Moishe Alexander says Town home rental activity during 2008 gained intensity as some households seeking single-family home-like lifestyles began to move away from growing resale prices. As a result, the vacancy rate for row house rental units declined to 2.2 per cent in October 2008, down from 2.9 a year earlier.

Average Rent Posts Moderate Increase

Moishe Alexander says Although the average monthly rent for this type of dwelling stayed significantly above that for apartment units, the growth in row house average rents remained below the rate of inflation, at 1.5 per cent. Average rents for row house units tend to be less responsive than apartments to tightening conditions due to their typically dispersed location in suburban areas away from the more expensive Downtown core.

Suburban Regions Tightened the Most

Moishe Alexander says The region of Nepean/Kanata, which currently offers 49 per cent of the total row house rental universe in the Ottawa CMA, experienced substantially tighter rental conditions in 2008.  As some households seek suburban lifestyles in this increasingly popular region, stronger demand cut the number of vacant units almost in half compared to last year, driving the vacancy rate down to 1.9 per cent from 3.2 per cent in 2007 and 5.1 per cent in 2006.

However, the growth in average rent in Nepean/Kanata increased only mildly by 1.8 per cent, and was eclipsed by the jumps seen in other regions closer to the core. This was particularly true for Glebe/Old Ottawa South and Carlington/Iris, which saw growth rates in average rents of 3.4 per cent and 4.2 per cent from last year, respectively.

Condominium Apartment Rental Market

Increasing Popularity of Condominium Apartment Rentals

Moishe Alexander says Despite the increase in condominium apartment rentals, the vacancy rate for this segment remained at 0.5 per cent, steady from last year. At the same time, the average rent stood at $1,093 per month, equivalent to a 22 per cent premium over purpose-built rental apartment units. Such strong demand within the fastest growing segment in Ottawa is being fuelled by its growing popularity among young professionals and empty-nesters who value highquality building services and proximity to the core and its amenities. Not surprisingly, the vacancy rate for rented condominium apartments in buildings with 150 units or more was the lowest, at just 0.2 per cent.

Condominium Apartments Supply Differs by Regions

Moishe Alexander says Pressure for purpose-built rental accommodation in the Downtown core eased considerably since last year due to a steep rise in condominium apartment supply. The purpose-built apartment vacancy rate reached 1.6 per cent in the Downtown core, up from 0.2 per cent in 2007. The inner suburbs experienced tightening in recent years, with its vacancy rate at 0.4 per cent this year, down from 1 per cent in 2007. Such tightening was mostly due to stronger demand pressures arising from the relatively more affordable rents. The popularity of condominium apartment rental remains strong in 2008 in this region, despite the fact that renters faced on average a 20 per cent premium in rent for a two-bedroom condominium apartment, over regular two bedroom rental apartments.

In contrast, the outer suburbs proved to be the preferred area for growth in condominium apartment rentals.  Although these regions saw the fastest yearly supply growth of 14.4 per cent, strong demand resulted in the lowest vacancy rate of 0.1 per cent, down from the already low 0.2 per cent. A relatively lower monthly rent in exchange for suburban lifestyles was an influential factor among renters, who faced an average rent of $940 for a two bedroom condominium apartment or 1 per cent above that of purpose-built rental units.

Affordability Indicator

Moishe Alexander says The rental affordability indicator is a gauge of how affordable a rental market is for those households which rent within that market. A generally accepted rule of thumb for affordability is that a household should spend less than 30 per cent of its gross income on housing. The rental affordability indicator examines a three-year moving average of median income of renter households and compares it to the median rent for a two-bedroom apartment in the centre in which they live. In general, as the indicator increases, the market becomes more affordable. This indicator is further explained in the Methodology section of this report.

According to CMHC’s rental affordability indicator, affordability in Ottawa’srental market improved this year. The indicator has been on an increasing trend since 2005 when it was at a low of 95. This year the median income of renter households grew by 6 per cent, while the median two-bedroom apartment rent jumped by just 4.4 per cent.  As a result, the rental affordability indicator in Ottawa stands at 98 for 2008, up from 97 in 2007.

2009 Rental Market Outlook

Moishe Alexander says A combination of strong rental demand with slow supply of purposed-built apartments will prevail next year, pushing vacancy rates down further to 1.0 per cent.  As well, record-high priced homes and economic uncertainty will deter some renters from jumping into the homeownership market.

Ottawa’s two bedroom apartment rents are expected to grow by 3 per cent in 2009. This increase will be below this year’s growth of 3.7 per cent because there will be lower turnover among tenants. The Residential Tenancies Act allows rent increases over the provincial guideline for apartments that become vacant.

You can find the entire report in PDF format through the following link:
http://www.cmhc-schl.gc.ca/odpub/esub/64423/64423_2008_A01.pdf

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Moishe Alexander’s review of the Saguenay 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 Saguenay Housing Market

Moishe Alexander’s Review

Economic and demographic conditions

Moishe Alexander says in the Saguenay census metropolitan area (CMA), the labour market has been experiencing a slowdown for the past few quarters. In fact, following a loss of 175 jobs in 2007, the CMA saw 245 more jobs disappear from January to August 2008. This decrease in the number of employed persons resulted from a forestry crisis that forced several plants to shut down and also from the high job levels observed in the area in 2004 and 2006. These high employment levels were attributable to the labour demand from a few major industrial projects, including the construction of the Péribonka IV hydroelectric dam and the expansion of the Alouette plant in Sept-Îles. Since these projects have been completed and the next major industrial projects—construction of a new plant in Jonquière by Rio Tinto Alcan and the Eastmain-1-A–Rupert– Sarcelles hydroelectric power station by Hydro-Québec—are only at their preliminary phase, many workers are now unemployed. The projects will pick up the pace starting in the summer of 2009 and will reach their cruising speed in 2010. It is therefore expected that the number of jobs in Saguenay will decrease between 1.8 to 2.2 per cent in 2008. Despite this decrease, the employment level, at 69,000, will remain above the average of 68,000 for the last 10 years. In 2009, employment should pick up slightly.

Moishe Alexander says The Saguenay CMA economy has strengthened in recent years with the announcement of major investment projects, such as the widening of Highway 175 and the modernization of the Rio Tinto Alcan plant. In addition, the gradual increase in retirements seems to be having an impact on net migration, as there are more and more quality jobs for young people, who are no longer forced to leave the area. For the first time since the year 2000, the latest interregional migration statistics1 indicate a positive result for the 25 to 44 years’age group.  However, net interregional migration remains negative overall. At the interprovincial level, the CMA is also facing a deficit, although smaller.

Moishe Alexander says Lastly, only international migration has shown positive results since the beginning of the decade, but these levels are far from sufficient to offset the departures to other Quebec areas or other provinces. It is therefore expected that total net migration will go from -794 in 2007 to -600 in 2008 and then to -450 in 2009. Still on the demographic front, household formation remains positive, despite the decline in the population. The aging of the population, as well as divorces and separations, are the main reasons. In the Saguenay CMA, about 350 households will be formed annually over the next five years.

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 stay strong in 2008 and 2009

Moishe Alexander says For a fourth straight year, starts will be on the rise in the Saguenay CMA in 2008. In fact, after reaching 464, 485 and 685 units in the last three years, respectively, total starts in the area should attain 800 units in 2008.  This will be an increase of 17 per cent over 2007 and the highest result for the Saguenay CMA since 1991, when 955 starts had been enumerated. In 2007, both the freehold home segment2 (+35 per cent) and the rental housing segment (+58 per cent) had fuelled the growth. Since the first segment was very active last year, a small gain is expected in 2008. The construction of a building with more than 200 apartments in Chicoutimi will cause the second segment to post a greater increase and will account for 29 per cent of all starts in 2008.

Moishe Alexander says Given that financing conditions remain attractive, that the number of existing homes for sale is limited and that employment is at a historically high level, a slight decrease in expected in 2009. Construction should therefore get under way on 720 units, or 10 per cent fewer than in 2008.

Level of freehold home building will be high

Moishe Alexander says As mentioned earlier, freehold home building has been increasing significantly for the past few years. From an annual average of 265 units from 2000 to 2005, starts rose to 315 and 318 units in 2005 and 2006, respectively, and then to 430 units 2007. The last time that such a high volume was recorded in the Saguenay CMA was in 1997, after the flooding. At that time, many homes had been destroyed or damaged, resulting in a need to rebuild. The environment in which the market has evolved in recent years is therefore quite different and is instead based on solid economic fundamentals.

Moishe Alexander says In 2008 and 2009, the impact of these economic factors will remain positive. Despite the job losses registered since the beginning of the year, the labour market continues to benefit from several major industrial and infrastructure investment projects. As these projects are not dependent on the global economy, they will support the labour market over the next few years. Net migration will keep improving, which will lead to an increase the number of potential buyers and, as a result, a greater demand on the overall housing market. Lastly, mortgage rates should fall slightly, which will extend the attractive financing conditions of recent years.

Moishe Alexander says The tightening of the rental market in the last few years is another factor that must be taken into account. This should stimulate the construction of duplexes in 2008 and 2009, since the rental of the second unit provides these homeowners with a certain income.  The limited supply on the resale market will also boost the construction of freehold homes, as some households will be prompted to opt for a new house after not being able to find a property that suits them on the existing home market. We therefore forecast that 450 freehold homes will be started in 2008, or 20 more than in 2007 (+5 per cent). These new dwellings will include 375 single-detached houses and 50 duplex units. Most will be built in the boroughs of Jonquière and Chicoutimi, and a few, in La Baie and Saint-Honoré. In 2009, even though a slight slowdown is anticipated, the freehold home starts volume will remain high, with 420 such new units expected, or 7 per cent fewer than in 2008.

Retirement home segment supporting rental housing construction

Moishe Alexander says The construction of rental housing, with the exception of retirement homes, continues to be very limited in the Saguenay CMA. Until 2005, this was understandable, since the vacancy rate was still above 4 per cent, so there was no significant need for new units. Since then, however, the vacancy rate has been steadily falling. According to the latest results (April 2008), this rate stood at 1.8 per cent, which would normally stimulate apartment construction. But this is not the case, and it is not expected to be case in 2008 or 2009. The fact is that current construction costs— including the land—are such that it is difficult for developers to offer rents that would be competitive with average market rates, making it hard to rent out the apartments. In addition, with the aging of the population, another segment is taking over, namely, retirement housing.

Moishe Alexander says Since 2002, 51 per cent of all rental housing units started in the area had been intended for seniors. In 2008, this share will rise to 70 per cent, with the construction of the fifth phase of an existing residence in Chicoutimi (an expansion with over 200 apartments). In 2009, construction could get under way on another retirement home, this one with just under 200 units. These projects arose in part from the fact that the vacancy rate for apartment retirement homes in Chicoutimi stood at 0 per cent in October 2007. In all, it is expected that 330 rental housing units (including those intended for seniors) will be started in 2008, or 43 per cent more than in 2007. In 2009, there should be a slight decrease in activity, as 280 starts of this type are anticipated (-15 per cent).

Little movement on the rental market

Moishe Alexander says The aging of the population, the constant improvement in net migration and the good performance of the labour market in recent years have led to a greater demand for rental dwellings and, as a result, a tighter a rental market. This caused the vacancy rate to fall from 5.6 per cent in 2004 to 2.8 per cent in 2007. In addition to these factors, there should slightly more CEGEP students in the area in 2008. Supply, despite only a very small rise, should meet these new needs and, for this reason, we do not expect the market to ease significantly in 2008.  In fact, the vacancy should reach 3 per cent this year, compared to 2.7 per cent in 2007. For 2009, we are anticipating a slightly greater increase in supply as a result of the tighter market, while demand should, at the very least, be maintained. Consequently, the vacancy rate will reach 2.9 per cent in 2009.

Condominiums gaining a foothold in the area

Moishe Alexander says Condominiums seem to be taking root in the Saguenay CMA housing market. While their numbers are rather limited (some 20 new units annually since 2006), this is a tenure option that meets the needs of specific client groups. While their relatively low prices attract first-time home buyers, their low maintenance appeals to retiring households. They are very well suited to older households wishing to remain homeowners but for whom maintaining a property is becoming a burden. Given that the aging of the population will only intensify, activity in this market segment should at least be maintained in the short term. For the moment, the fact that new and existing homes are not as expensive here as in other large urban centres across Quebec, where condominiums are well implanted, is probably the main reason for the limited number of condominium starts in Saguenay. In 2008 and 2009, foundations should be laid for about 20 units of this type.

Fast growth in prices to affect existing property sales

Moishe Alexander says Sales of single-family homes3 reached a peak in 2007 in the Saguenay CMA.  In fact, 1,303 homes were sold through the Service inter-agences / Multiple Listing Service (S.I.A. / MLS)® during the past year, or 51 more than the previous record set in 2005 (1,252 transactions). In 2008, a slowdown is expected, even though the economic and demographic conditions will remain favourable. The reason is that singlefamily home prices have risen significantly in recent years, and this is starting to cause some hesitation among potential buyers. The average price effectively went from $94,346 in 2003 up to $136,913 in 2007, for an increase of 45 per cent in four years. For several years now, sellers have had the edge in determining prices, on account of the limited supply and a strong demand. Consequently, we are seeing price hikes well above inflation. Since the situation will not be any different in 2008, 1,230 sales are anticipated, and the average price should reach $150,000 (+10 per cent).

Moishe Alexander says In 2009, the sales volume will be essentially the same as in 2008, as the factors supporting demand will remain solid. However, inventories are expected to rise slightly in the price ranges that are in competition with the new home market. This should cause the market to ease, somewhat lessening the pressure on the average selling price in this range.  We therefore expect that singlefamily homes will sell for an average of $160,000 in 2009 (+7 per cent).

You can find the entire report in PDF format through the following link:
http://www.cmhc-schl.gc.ca/odpub/esub/64283/64283_2008_B02.pdf