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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 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