Canada's real estate market trends

Home Prices Decline for the First Time in Seven Years According to Scotia Economics

After many false calls, there is now convincing evidence that Canada's housing market has come off the boil, according to the latest Real Estate Trends released today by Scotia Economics. Home resales, having fallen for four consecutive months, are running about 15 per cent below last summer's historic peak. Average annual home price appreciation has eased back into the mid single digits, as overall market conditions come into better balance. Adjusted for inflation, the average resale home price in Canada registered its first quarterly decline in seven years in the first quarter of 2008.

According to the report, cracks are appearing on the new home front as well. While housing starts in early 2008 are essentially tracking last year's elevated levels, demand for new residential building permits has fallen sharply. Price increases for new homes are moderating, while inventories of unsold new homes are trending higher.

"We expect overall sales volumes in 2008 to total about 15 per cent below last year's record levels, and home prices to increase on average by about five per cent," said Adrienne Warren, Senior Economist, Scotia Economics. "Price gains should slow further in 2009 with the return of a balanced market for the first time in a decade. Meanwhile, housing starts are projected to gradually moderate, returning toward underlying annual household formation levels of around 180,000 by the end of the decade, from the current 225,000 unit range."

The report also states that the cooling in overall activity is most notable in many of Canada's hottest urban housing markets in recent years, including Calgary and Edmonton. Both centres have officially moved into buyers' territory as soaring prices weaken demand and fuel new listings. More generally, however, economic conditions continue to favour the resource-rich markets in the West over manufacturing-dominated centres in Central Canada. Regina and Saskatoon are currently in the strongest sellers' position nationally, supported by good affordability, rising population inflows and tight supply.

Risk of a major correction still low

According to the report, Canada's recent record of home price appreciation, averaging an annualized 10 per cent from 2002 to 2007, was unsustainable, and a return to more historical norms is a welcome development. The faster and longer home prices climb, the greater the risk of an eventual price correction. Canada's last two major housing booms of the 1970s and 1980s were both followed by some degree of real price stagnation or decline, an essential ingredient to restoring affordability and generating renewed pent-up housing demand.

Ms. Warren cites a number of reasons why a major correction is not in the cards, "Home prices in Canada are not substantially overvalued. Our long-term housing price model puts average home prices in 2007 at about eight per cent above their long-term trend, compared with a premium of 12 per cent and 18 per cent, respectively, at the 1976 and 1989 housing cycle peaks. Recent International Monetary Fund (IMF) estimates placed Canada at the bottom rungs of international home price overvaluation."

Canada's real estate market is not overbuilt. While inventories of unsold homes are trending higher, the number of unabsorbed units, including condominiums, remains well below prior cyclical peaks in most major centres. Tighter lending guidelines and high construction costs have likely contributed to a more cautious approach among builders.

Households, for their part, are not overleveraged. Home equity as a share of real estate assets is near record highs, with price appreciation outpacing the rise in mortgage obligations. Mortgage carrying costs as a share of disposable incomes are historically low despite rising home prices.

Overall mortgage quality is still sound. Canadian lenders have maintained conservative loan qualifying criteria in recent years even while introducing a range of new products, including interest-only mortgages, no downpayment mortgages, and extended amortization of up to 40 years. Canada does not have ultra-low teaser rate mortgages that have contributed heavily to U.S. defaults as they reset. Adjustable-rate mortgages, sub-prime lending, borrowing against home equity, and insured investor mortgages all account for a much smaller share of the Canadian mortgage market than in the United States.

"At the end of the day, we predict a soft landing for the Canadian housing market, with somewhat lower sales and construction, and a period of relatively flat inflation-adjusted home prices," added Ms. Warren. "While underlying domestic housing fundamentals remain healthy, a major risk to the outlook would be a deeper and more protracted downturn in the U.S. economy, with more serious repercussions for domestic output, employment and income growth."

See the full Real Estate Trends report »

May 15, 2008 in Canadian Market Forecast | Permalink | Comments (6) | TrackBack

Key Real Estate Market Factors

as they effect Canadian housing

Mortgage Rates

Mortgage rates have moved slightly higher over the past year. This rise, in conjunction with higher house prices, has and will continue to push mortgage carrying costs higher. As a result, this will ease housing demand, particularly for first-time buyers.

Employment

A record share of Canadians continue to be employed, moving the economy close to full-employment. Accordingly, job growth should slow to rates that are more in line with overall population growth. Job creation will continue to stimulate housing demand, but not as much as in the previous years.

Income

Rising incomes will continue because of tight labour markets and a strong demand for workers. This should partially offset the negative impact of higher mortgage carrying costs on home ownership demand.

Net Migration

Net migration is expected to remain strong in 2008. Ontario, Quebec, and British Columbia will continue to attract the bulk of the international immigrants. B.C., Alberta and Saskatchewan will attract a large number of inter-provincial migrants from the rest of Canada.

Demographics

Canada’s population is aging, and as a result, a smaller proportion of people are in their child bearing years and thus the birth rate is decreasing. High immigration levels will slow the average aging of the population, however, the rate of increase in the natural population (births - deaths) is slowing. This will eventually lessen the demand for additional housing stock in the longer term.

Consumer Confidence

Consumer confidence, as measured by the Conference Board of Canada, remains positive. Furthermore, strong consumer sentiment is expected to prevail throughout the forecast period. Confident consumers will continue to support demand for home ownership.

Market Inventories

Lower existing home sales, combined with a high level of new listings in 2008, will move the resale market towards more balanced territory. As a result, the rate of growth in the average MLS® price will moderate during 2008, especially in Canada’s western provinces.

Vacancy Rates

Modest rental construction and increased competition from the condo market will be offset by strong rental demand due to high immigration and a rising gap between the cost of homeownership and renting. As a result, vacancy rates across Canada’s metropolitan centres should remain relatively stable, but slightly higher in 2008.

For more information, see CMHC's latest Housing Market Outlook report »

May 4, 2008 in Canadian Market Forecast | Permalink | Comments (5) | TrackBack

Softer sales to cool real estate market

Canadian housing markets should cool down some this year and next with softer sales, construction and price growth from coast to coast. But an expected cut in interest rates by the Bank of Canada will likely soften the blow, says a forecast from TD Economics.

"Canada's real estate markets have been a pillar of strength this decade," TD deputy chief economist Craig Alexander said in his report, released yesterday. "But the recent U.S. housing correction certainly highlights the risk that booms can rapidly turn into busts."

Over the past five years, Canadian real estate, driven by demand in the western provinces, has seen an average 10 per cent gain annually. But the latest data show the market has already started to cool, with growth having peaked in some cities, including Calgary and Edmonton, where prices have fallen. "A weakening in affordability is a strong signal that it is only a matter of time before sales moderate and market conditions become more balanced," Alexander said.

In Toronto, home sales have fallen for three straight months since the beginning of the year. The low figures could be distorted due to poor weather conditions and the introduction of a land transfer tax, the report said. "As a result, a rebound in the spring may be in the cards, but then a renewed moderation should unfold."

Short-term rates are forecast to be lower by one and a half percentage points by the end of the year. Five-year fixed rates are not expected to come down significantly because of continuing problems in the credit markets. The Bank of Canada is forecast to gradually tighten rates by late 2009 and leading into 2010.

Real estate conditions would have likely cooled sooner if not for new financing products such as extended 40-year mortgages, which has delayed the impact, the bank's report says. The mortgages, preferred by some first-time buyers, have been criticized for adding massive debt to consumers who may never pay off their homes.

One concern remaining is over condominium building – Toronto is North America's largest site for this type of product. But TD said it's impossible to figure out how many speculators are in the market to make an accurate forecast. "The main concern on the condo front is the extent to which purchases are being made for speculative purposes which would make them more vulnerable to price swings," Alexander said.

April 11, 2008 in Canadian Market Forecast | Permalink | Comments (2) | TrackBack

Future real estate trends for Canada

With housing prices collapsing in parts of the United States, many Toronto homeowners are wondering if the same fate awaits the real estate market here. Housing experts seem divided on that question.

Ted Tsiakopoulos, Ontario regional economist for the Canada Mortgage and Housing Corporation, laid out the optimistic case. "We don't see a U.S.-style housing market meltdown in Canada for three very important reasons," he said today.

In mid-March, however, the Royal Bank reported that home ownership costs have risen to the highest point since 1990. That year marked the "peak of the housing bubble," it said. However, the bank was optimistic the current situation should ease.  "Going forward, falling mortgage rates, cooler forecast house price gains and decent income growth should all lead to improved affordability across most markets," it said.

Tsiakopoulos said the CMHC sees moderate price growth continuing. But Ontario MP Garth Turner has a different view. The author of a new book, "The Greater Fool: The Troubled Future of Real Estate," Turner thinks the pieces are in place for a real estate collapse in this country.

The U.S. financial sector has been rocked by subprime mortgages, which essentially provided a way into real estate for people who wouldn't qualify for conventional mortgages. But Turner says the real story is that housing prices in the U.S. got more expensive than Americans could afford.

In Canada, real estate prices have essentially doubled in five years. Turner said he didn't think that was a "reasonable" increase. Over that period, household incomes have stayed essentially flat, he added.

Mortgages in Canada?

"What's been the Canadian response? Well, guess what? We've brought in a new kind of mortgage — 40-year amortizations," Turner said. You can also get a home for virtually no money down, Turner adds. "You tell me what the difference between subprimes and a 40-year, no-down-payment loans in Canada is. The net effect is exactly the same. People buy houses who otherwise couldn't buy them." In the biggest markets, people are unquestionably house-poor, he said.

The RBC's affordability measure for a detached bungalow in Vancouver is about 74 per cent and more than 47 per cent in Toronto.

Places like Calgary and Edmonton come closer to the national average of 41 per cent.

The affordability measure is the proportion of median pre-tax household income required to service the cost of mortgage payments (principal and interest), property taxes and utilities.

The measure has traditionally been around 30 per cent, Turner said. "We've got a very screwed-up personal financial situation right now, and I see some dangers in that," he added.

RBC's Amy Goldbloom said that an their study finds that for 2007, the U.S. situation was worse than here. Mortgage debt there was 119 per cent of disposable income versus about 79 per cent in Canada. Total household debt was also much higher in the U.S. than Canada. "Americans are more indebted and more leveraged," she said.

Goldboom said the RBC's analysis and prediction of moderate price increases took into account a slowing U.S. economy's effect on Canada. "We aren't forecasting outright declines in prices as we're seeing state-side," she said.

But Turner rolled off some troubling statistics, such as sales activity of resale homes in Canada falling six per cent in February -- although some critics have argued that blip could be due to stormy winter weather.

In his own riding of Halton west of Toronto, houses are staying on the market for up to 12 months and are falling in price, he said.

"Why you would want to be a new purchaser of real estate right now is beyond me," he said, adding that many young people have only known real estate to go up in value.

If you still want to buy a home, Turner makes the following recommendations:

"We're into the most incredible renter's market coming up. If you simply want to make money and secure your finances, you're going to rent, because renting is far, far less than the cost of owning right now," Turner said. "And it will remain that way for the next couple of years."

Source: CTV News

March 25, 2008 in Canadian Market Forecast | Permalink | Comments (2) | TrackBack

Canadian Real Estate Trends Report

Scotiabank forum predicts another healthy year ahead for Canadian real estate markets

Canadian real estate markets will remain remarkably buoyant, especially in light of the deepening housing downturn in the United States and the generally softening conditions in most other advanced economies, according to experts who presented at Scotiabank's Canadian Real Estate Outlook and Trends Forum, held yesterday in Toronto.

During the forum, keynote speaker Phil Soper, President and CEO of Brookfield Real Estate Services commented, "Our expectations are that balanced conditions will prevail throughout 2008, which will mark a return to a more 'normal' environment than the highly skewed seller's market that we have experienced over the better part of this decade. A stumbling American economy will impact us, slowing growth here at home, yet the solid foundation that supports the contemporary Canadian economy should prevent the housing market here from retracting."

Also speaking at the conference was Adrienne Warren, Senior Economist, Scotiabank. "We expect construction, sales and price gains to moderate in 2008 due to decreasing affordability, especially for first-time buyers, and some softening in domestic economic conditions associated with the intensifying U.S. slowdown," remarked Ms. Warren while presenting the findings of her latest Real Estate Trends Report. "Housing starts will likely ease to around 204,000 units, still firmly above underlying household formation, with the more affordable multiple-family segment holding up better than single-detached construction."

Ms. Warren added that more balanced resale market conditions, as sales volumes edge down and more listings come on stream, should bring average price increases back into the mid-single digit range. Renovation activity, which lags the trend in home resales by one to three years, will outperform new construction.

Mr. Soper added, "New flexible financial products, affordable interest rates and increasing choice in the condominium market across Canada, will continue to attract first-time buyers to real estate - even in high-priced markets. We can also expect to see a broadening buyer pool, as emerging high growth market segments such as single female buyers are anticipated to take advantage of the favourable market conditions."

Economic conditions still favour Western Canada

In her report, Ms. Warren states that housing starts totaled 228,343 units in 2007, essentially matching the high level of activity of the prior two years and only two per cent below the 233,431 unit peak of 2004. Strength was evident across the country, but led by more than a 60 per cent surge in new homebuilding in Saskatchewan, underpinned by strong job growth, good affordability and a positive shift in net interprovincial migration. Resale activity was equally brisk, with MLS sales volumes reaching a new record in 2007 and average home prices climbing a further 11 per cent. While Western Canada continues to lead in price appreciation, average prices rose by at least five per cent in all provinces last year. The momentum of construction and sales has carried through to 2008.

Ms. Warren also reports that from a demand standpoint, economic conditions still favour Western Canada, with its booming resource-based industries and extremely tight labour markets. Yet, affordability is becoming a constraining factor in several centres, including Calgary where average home prices have doubled in the past four years.

From a supply perspective, most Canadian markets are still in sellers' territory, in which prices would be expected to rise faster than inflation. Yet, some of the hottest markets in recent years, including Edmonton, have become much better balanced due to a flood of new listings. Based on a combination of job growth, housing supply and affordability, among this year's potential outperformers are Saskatoon, Regina and Winnipeg in the West, Sudbury, Hamilton and Quebec City in Central Canada, and St. John's to the East.

Commercial markets to lead

Commercial market activity in Canada should be brisk in 2008 even as the pace of residential building gradually cools. Notwithstanding a number of major new office tower developments currently underway, centred in Toronto and Calgary, significant new space is not expected until 2009.

"Given a high pre-lease ratio, vacancy rates should remain low and rents on the rise," Ms. Warren said in her presentation. "The national downtown office vacancy rate hit a 22-year low of just 4.7 per cent in the final quarter of 2007, with both Calgary and Vancouver below the three per cent mark. Demand for new office space is being supported by strong employment growth, environmental and technical upgrades, and institutional investor interest.

A housing boom for the history books

Ms. Warren concluded her presentation with the discussion of real home price appreciation, noting that Canada's current housing boom is the strongest and longest of the post-war era. Between 1998 and 2007, average inflation-adjusted home prices have soared some 65 per cent, easily besting the 32-56 per cent appreciation of the prior three housing cycles of the 1960s, 1970s and 1980s. At their peak in 2005, U.S. real home prices had increased a cumulative 48 per cent from the 1995 trough.

"Canada's record price gain owes entirely to the longevity of the expansion," said Ms. Warren. "The current housing upswing is going on ten years, whereas the prior three cycles ranged from five to six years. It has also outlasted the housing booms experienced in many other advanced economies this decade. Average annual price appreciation over this period has actually been quite typical at just under six per cent per year, and well below the almost 10 per cent average annual price gains recorded in the late-1980s."

Economy to maintain moderate growth

Aron Gampel, Vice-President and Deputy Chief Economist, Scotiabank, also provided a brief overview of the changing economic and financial conditions that are affecting the Canadian outlook.

According to Mr. Gampel, "the Canadian economy is likely to maintain moderate growth this year and next, with the strength of the development boom in the resource-rich regions of the country providing a much needed offset to the increasing drag on our manufacturing centres from the intensifying U.S. slowdown and persistently strong currency."

Mr. Gampel added that "while underlying domestic fundamentals are still encouraging and broadly supportive of the real estate market, the increasing downside risks to the U.S. outlook could further restrain housing's overall performance."

See the full report »

February 27, 2008 in Canadian Market Forecast | Permalink | Comments (3) | TrackBack

Real Estate Outlook and Trends Forum

Scotiabank is presenting its Canadian Real Estate Outlook and Trends Forum 2008 on Tuesday, February 26 in Toronto. The purpose is to provide insights into the residential real estate market, including the latest underlying economic factors.

The forum presenters will provide an economic overview; a review of specific economic issues influencing the real estate sector; and a discussion on social and demographic trends which will shape the markets during 2008.

Phil Soper, President of Brookfield Real Estate Services, as Keynote Speaker will address the impact of women on the Canadian market.

Aron Gampel, Deputy Chief Economist, Scotiabank, will provide an overview of Canadian prospects, and highlight key economic trends and the outlook for interest rates in 2008.

Adrienne Warren, Senior Economist, Scotiabank, will offer a commercial and residential market outlook at the national, provincial and urban level, including highlights of the newest Scotiabank Real Estate Trends Report.

The forum will be heald on Tuesday, February 26 from 11:00 a.m. to noon at the Scotia Plaza, 40 King Street West, 63rd Floor, Toronto.

February 25, 2008 in Canadian Market Forecast | Permalink | Comments (3) | TrackBack

Real estate affordability to improve

Housing affordability is likely to improve this year as house-price growth eases and falling interest rates make mortgages cheaper, economists say. Michael Gregory, senior economist at BMO Capital Markets, said housing affordability was becoming an increasingly important issue in some Canadian cities, with house prices jumping at "unsustainable" levels amid a surge in population-driven demand, a strong jobs market and relatively low mortgage costs.

In Saskatoon, the cost of a new house skyrocketed an amazing 45.1% in 2007, while prices were up 25.9% in Regina and 21.5% in Edmonton, Statistics Canada figures showed yesterday.

Prices were up 4.1% in Montreal, 6.4% in Vancouver, 6% in Calgary and 3.4% in Toronto and Oshawa over the year.

While new home prices should remain strong in 2008, the pace of growth will continue to moderate to about 2% to 3%, Mr. Gregory said.

The slower pace of growth is already evident in the market as newhome prices increased only 0.1% in December, well below the average monthly increase of 0.5% in 2007.

"The key thing is the last few months have been quite subdued in terms of the monthly increases, at least the trend has been, and if that continues, we'll probably have subdued home-price inflation going forward," Mr. Gregory said.

"The market has a way of cooling itself. Alberta had just got so expensive that people stopped moving there. Eventually supply catches up to demand, and that's what happened in Calgary," he said.

He said existing home prices, due on Friday, should also show signs of easing, with both segments of the market slowing further in 2009.

Rishi Sondhi, economist at RBC Capital Markets, said housing should become more affordable as house-price gains ease and interest rates fall, with the Bank of Canada expected to cut interest rates again in March following a 25-basis-point cut to 4% in January.

Some economists expect rates to reach as low as 3% by mid-year.

Mr. Sondhi said the moderation in house-price growth was placing less pressure on inflation, leaving the door open for the Bank of Canada to cut interest rates to prevent a significant economic slowdown.

Larry Stewart, broker and owner of RE/MAX Saskatoon, said the sharp rise in the city's house prices in 2007 was driving more people, particularly first-time home buyers, into cheaper high-density living, such as condominiums.

"That's filling the gap for the newhome buyer [who] can't afford to get into the market with increased house prices," Mr. Stewart said, adding that prices in Saskatoon would likely rise a further 20% in 2008.

However, Mr. Stewart said aggressive competition between mortgage companies was helping younger people to get into the market, offering, for example, loans equal to 100% of the value of a home.

Condominium sales have been surging across Canada, particularly in such high-density city areas as Toronto, where condo sales accounted for 52% of all new-home sales in 2007, according to figures from N. Barry Lyon Consultants and RealNet Canada.

February 12, 2008 in Canadian Market Forecast | Permalink | Comments (2) | TrackBack

CMHC Housing Market Outlook

Soft Landing for Housing Starts in 2008

Housing starts will moderate this year to 209,500 units after reaching 227,395 units in 2006, according to Canada Mortgage and Housing Corporation's (CMHC) first quarter Housing Market Outlook report. Although residential construction will decline, 2007 marked the sixth consecutive year in which housing starts exceed 200,000 units. Starts will ease further to 195,500 units in 2008.

"Construction activity will continue to moderate as demand for home ownership moves toward more sustainable levels," said Bob Dugan, Chief Economist at CMHC. "Most of the pent-up demand that built up during the 1990s has been absorbed, and higher mortgage carrying costs due to continued strong price growth and modest increases in mortgage rates will contribute to the slower pace of new home construction both this year and next."

Existing home sales, as measured by the Multiple Listing Service (MLS®), remained near record levels in 2006. Sales will ease to 464,550 units in 2007 and to 449,200 units in 2008. Similarly, after five years of strong growth in house prices, the rate of increase in the average MLS® price will moderate to 5.9 per cent in 2007 and 3.3 per cent in 2008 as existing home markets move toward balanced conditions. The strongest price growth will be in Western Canada; with the average MLS® price in Alberta growing by 13.3 per cent in 2007 — after having increased by 29.5 per cent in 2006. Average MLS® prices in Ontario and Quebec will grow by 3.2 per cent and 4.1 per cent in 2007, respectively.

In Ontario, slower growth in net migration, rising new home prices and increased choice in the resale market combined with land constraints will weaken housing starts from 73,417 units in 2006 to 67,000 units in 2007 and to 62,750 units in 2008. These declines will move housing starts in Ontario into line with the average level over the past decade and a half.

See the full CMHC Housing Market Outlook 2008 »

February 5, 2008 in Canadian Market Forecast | Permalink | Comments (1) | TrackBack

Homeownership becoming affordable?

Housing affordability to improve in 2008, says RBC Economics

After homeownership costs climbed steadily through 2007, nationwide housing affordability should to start to improve in 2008, according to the latest Housing Affordability report by RBC Economics.

"Almost every house class in every province and major city saw affordability deteriorate last year," said Derek Holt, assistant chief economist, RBC. "Unlike the late 1980s and early 1990s when both unemployment rates and interest rates pushed into double digits and led to declining affordability, the prime culprit this time around has been a long string of house price gains that have outstripped income gains."

The RBC Affordability report measures the proportion of pre-tax household income needed to service the costs of owning a home. In the most recent quarter, the affordability of all four housing classes eroded, with the exception of slight improvements in Calgary's condos and Edmonton's detached bungalows. Across the country, the standard condo remained the most affordable housing type, requiring about 30 per cent of pre-tax household income. A standard townhouse was next at 34 per cent, followed by a detached bungalow at 42 per cent while a standard two-storey home remained the least affordable housing type at 47 per cent.

According to RBC, new record highs for the amount of household income going towards homeownership costs are being set across most housing classes in British Columbia, Alberta and Saskatchewan. While their provincial economies are strong, the gains have been increasingly leveraged. The Saskatchewan-Manitoba border remains the dividing line between over-heated housing markets in Canada: everything from Manitoba eastward remains well below previous record highs for affordability set in the late 1980s and early 1990s.

Canada's rate of resale house price appreciation is likely to slow to between five and seven per cent in 2008. New home construction volumes and income growth are also expected to decline. The popular five-year mortgage rate is anticipated to drift about 50 to 75 basis points lower by year-end, and the Bank of Canada's overnight rate is forecast to drop by a further 100 basis points.

RBC's Affordability measures for a detached bungalow for Canada's largest cities are as follows: Vancouver, 72 per cent, Calgary, 46 per cent, Toronto, 46 per cent, Montreal, 37 per cent and Ottawa, 32 per cent.

The Housing Affordability measure, which RBC has compiled since 1985, is based on the costs of owning a detached bungalow, a reasonable property benchmark for the housing market. Alternative housing types are also presented including a standard two-storey home, a standard townhouse and a standard condo. The higher the reading, the more costly it is to afford a home. For example, an Affordability reading of 50 per cent means that homeownership costs, including mortgage payments, utilities and property taxes, take up 50 per cent of a typical household's monthly pre-tax income.

In addition to major urban centres, the report includes housing affordability conditions for a broader sampling of smaller cities across the country. For these smaller cities, RBC has used a narrower measure of housing affordability that only takes mortgage payments relative to incomes into account.

Highlights from across Canada:

British Columbia: Housing affordability reached into uncharted territory late last year as affordability deteriorated to its worst level since 1985 when RBC started tracking conditions. Modest improvements are expected for 2008.

Alberta: Many prospective homebuyers were priced out of the market last year as housing affordability conditions eroded, pushing markets into unsustainable territory. With a softer influx of migrants, the housing market is poised for a significant slowdown and improved affordability.

Saskatchewan: Housing affordability deteriorated sharply across all home segments last year as a sudden influx of migrants strained existing housing capacity. In 2008, housing affordability conditions are expected to stabilize.

Manitoba: The province's housing market is still running at full tilt. Affordability should improve as rising costs start to weigh on demand and help rebalance the market in 2008.

Ontario: Income growth is expected to cool amidst toughening economic conditions in the province. On balance, our affordability forecast in 2008 points to overall improving conditions as mortgage rates drift lower and price gains moderate even further.

Quebec: Housing affordability continued to deteriorate last year. Stable and modest price gains combined with some mortgage rate relief this year should translate into an overall improvement in affordability conditions across all four home segments in 2008.

Atlantic region: Strong house price gains and rising mortgage rates chipped away at affordability conditions in 2007. In 2008, Atlantic Canada is expected to move onto a softer growth trajectory as housing construction activity gears down.

The full RBC Housing Affordability report is available online »

January 27, 2008 in Canadian Market Forecast | Permalink | Comments (1) | TrackBack

Canadian Real Estate Forecast

Will the U.S market crunch affect Canadian real estate in 2008?

The market crisis south of the border has many homebuyers wondering how it will affect housing markets in Canada, but Canadian market analysts feel that the problems the United States is experiencing should have little impact on real estate in this country.

Canada is not expected to experience the same downturn as the U.S. market for many reasons. First, the Canadian economy is simpler and the investment environment is more conservative than the United States. Secondly, Canadian federal surpluses have given consumers more confidence which has led to increased spendings on homes, retail goods, and business expansion. Additionally, the Canadian housing market has not been artificially driven by bad lending practices. And, unlike the U.S., all mortgages in Canada are insured.

However, Canada’s booming housing market could loose heat by the end of the year. The impact of the U.S. sub-prime crisis is expected to be felt by Canadians in three different ways:

"The Canadian housing market will slow down a bit in 2008, but that slowdown will be nothing compared to what happened in some U.S. markets in 2007. In Canada, the housing market has been setting records for volume and units sold for five consecutive years. We believe things are just moving back towards a more "normal" growth pace, but that still means the 2008 MLS® home sales activity will be the second highest on record, second only to the overall record was set in 2007.", says the Canadian Real Estate Associatin's Chief Economist.

CREA's market analysis for 2008 also does not show any dramatic adjustment in the average MLS® residential price, again contrary to the conditions in some U.S. markets. CREA's analysis shows prices setting new records in every province in 2007 and in 2008, but price increases will be smaller in 2008. In effect, price increases will become smaller as the resale housing market becomes more balanced. Manitoba and Nova Scotia are expected to post an increase in average price of 7 per cent or more in 2008, while New Brunswick and Newfoundland are expected to show the smallest increase in average price of 4 per cent annually. The national average residential MLS® price is expected to increase 5.5 per cent.

"The housing market is expected to grow at a more moderate pace this year. However, this will be the result of decreasing affordability rather than the impact of U.S. sub-prime woes", said Craig Alexander, deputy chief economist at Toronto-Dominion Bank.

To conclude, markets will remain tightest in the western provinces in 2008. Even though Alberta and British Colombia are expected to pull back from the blistering pace they set earlier in 2007, housing there will remain in high demand. The days of 25 or 30 per cent increases in average price are over, but prices are forecasted to go up in Alberta and British Colombia by 5.2 and 5.1 per cent, respectively. Ontario's market and other eastern provinces are expected to keep its momentum with a slight slow down.

January 16, 2008 in Canadian Market Forecast | Permalink | Comments (0) | TrackBack

New-home prices surpass forecasts

But building permits fall almost 10%

Prices for new homes grew faster than expected in November, according to figures just released by Statistics Canada. Prices rose 6.1% on a yearly basis and 0.5% from the previous month. Economists had been expecting slightly lower increases in both cases.

Booming commodity prices helped Saskatoon lead the country once again, as the area saw prices jump 47.9%, while Windsor was the only city in Canada to see year-over-year deflation, with prices falling 1.7% from a year ago.

In other housing-related news, the value of building permits issued fell more than expected in November, tumbling close to 10% from October.

But the total value of building permits issued by municipalities hit $68-billion in the first 11 months of 2007, a 12.4% jump from the first 11 months of 2006 and higher than the previous record of $66-billion, also set in 2006.

"Obviously the Canadian housing market, though still very healthy, has been losing steam (housing starts took a weather-related dive in December) but it is nowhere close to U.S. housing conditions," wrote BMO Capital Markets economist Jennifer Lee in a morning commentary.

January 14, 2008 in Canadian Market Forecast | Permalink | Comments (1) | TrackBack

2008 Real Estate Forecast

Canadian home prices to rise by 3.5% in 2008: Royal LePage

Real estate brokerage Royal LePage is forecasting "steady, yet moderate growth" in the Canadian residential property market in 2008 after the industry's busiest year ever in 2007. Royal LePage predicts that house prices nationally will rise by 3.5 per cent to an average of $317,288 next year. The number of transactions is forecast to slip by four per cent to just over half a million - still above the number of sales in any year before the record pace of 2007.

Coinciding with the Royal LePage report came data from the Canadian Real Estate Association showing Multiple Listing Service home resales broke all previous annual records by the end of November.

MLS activity in major markets totalled 345,577 units in the first 11 months of this year, 2.7 per cent more than the previous full-year record of 336,646 in 2005.

Royal LePage Real Estate Services president Phil Soper said Canada's housing market should continue to thrive next year on strong economic fundamentals including high employment, solid consumer confidence, modest inflation and a relatively low cost of borrowing.

Soper noted that Canada is in one of the longest housing market expansions in history, but in 2008 eroding affordability is likely to reduce demand, "allowing the market to move toward balanced conditions, with lower levels of price appreciation, and fewer homes trading hands."

Royal LePage, a unit of the Brookfield Real Estate Services Fund (TSX:BRE.UN), predicts next years's biggest percentage price increases will be in the most affordable large urban markets - Regina and Winnipeg.

In Calgary and Edmonton "the excessively fast run-up of home values in 2006 and the first half of 2007 priced people out of the market," and increases are expected to be more moderate in 2008.

Ontario and Quebec property markets "are anticipated to maintain their relative strength and vibrancy throughout next year, weathering stormy financial markets and adjusting well to the high value of the Canadian dollar."

The Multiple Listing Service data showed little slackening in the pace of home-buying last month, though activity was off the frenetic peak of earlier in the year. It was the busiest November on record, up 7.6 per cent from a year ago and up 3.2 per cent from October on a seasonally adjusted basis.

"The monthly rise in sales activity caused the resale housing market to tighten in November compared to the previous month," the real estate association commented.

"Activity is at or just below record levels in Regina, Winnipeg and Newfoundland and Labrador, making them the tightest major markets in November. Edmonton, Calgary and Windsor remained the most balanced major markets."

November's average price for resale homes purchased through the MLS system was up 11.6 per cent from a year earlier at $332,807.

CREA economist Gregory Klump said a seller's marker continues in most cities, and there is no sign in Canada of the mortgage woes that have afflicted the American housing sector.

"Our association has not received any reports from realtors that creditworthy homebuyers are having difficulty getting mortgage financing as a result of the subprime meltdown," Klump said.

December 19, 2007 in Canadian Market Forecast | Permalink | Comments (2) | TrackBack

Real Estate Market Predictions

Canada's house prices forecast to rise by 3.5 per cent in 2008 but activity is expected to moderate

After experiencing an exceptional year characterized by strong average house price appreciation and record breaking unit sales, the momentum from 2007 is anticipated to carry over and position Canada's real estate market for steady, yet moderate growth in 2008, according to the Royal LePage 2008 Market Survey Forecast.

Nationally, average house prices are forecast to rise by 3.5 per cent to $317,288 in 2008, while transactions are projected to fall slightly from this year's record high unit sales to 500,927 (-4.0 %) unit sales in 2008. Despite the year-over-year reduction in sales, the number of homes selling in 2008 is expected to remain higher than in all years prior to 2007.

"Canada's housing market in 2008 should continue to thrive on a balanced diet of strong economic fundamentals, including high levels of employment, resilient consumer confidence, modest levels of inflation and the relatively low cost of borrowing money," said Phil Soper, president and chief executive of Royal LePage Real Estate Services. "Canada is currently enjoying one of the longest housing market expansions in history; however, as we move into 2008 it is anticipated that slowly eroding affordability will cause demand to ease, allowing the market to move toward balanced conditions, with lower levels of price appreciation, and fewer homes trading hands."

With the most affordable major market homes in Canada, residents of Regina and Winnipeg are forecast to drive the greatest increases in house prices in 2008, as job opportunities and in-migration continue to soar in each city. While Calgary and Edmonton will continue to boast healthy economies and high levels of home sale activity, the excessively fast run-up of home values in 2006 and the first half of 2007 priced people out of the market, causing inventory levels to rise late in the year. Alberta home price increases will be much more moderate in 2008 as the regional market continues to adjust to the new house value reality.

With the country's highest home prices, Vancouver's steadfast market will continue to expand on the back of a strong provincial economy. As the city readies itself for the 2010 Olympic Games, there will be an abundance of new jobs created.

Ontario and Quebec markets are anticipated to maintain their relative strength and vibrancy throughout next year, weathering stormy financial markets and adjusting well to the high value of the Canadian dollar. The services based industries that have become the backbone of the Toronto and Montreal economies have tolerated the rise of Canada's dollar to parity very well, despite increasingly price competitive offering from overseas markets.

In Atlantic Canada, a slight depletion of inventory coupled with high immigration levels will see the housing market growing at a strong and steady pace - Halifax is expected to have higher than national average growth in 2008.

The frenzied pace of price inflation that has characterized the real estate market over the past two years in the resource rich west were unsustainable and should ease substantially in 2008. In Central Canada, price increases peaked in late 2005, and have been moderating since.

From coast-to-coast, the homebuyer demographic is anticipated to swell with first-time purchasers, as many flock to take advantage of recently reduced lending rates, longer amortization periods and the resultant manageable mortgage payments.

Added Soper: "The year ahead presents opportunities for those people who have shied away from the frenetic real estate market of the past few years, with its bidding wars and unconditional offers; while prices should continue to rise, they are expected to do so at a more reasonable pace. Canada's economy is strong, and the desire for home ownership remains a vibrant and attainable goal - real estate remains a solid long term investment."

Highlight of 2008 Trends

Strength of the Canadian Dollar

The position of the Canadian dollar hovering at parity will continue to bolster the country's high consumer confidence, and is anticipated to translate into continued growth in consumer spending. The negative impact of the high dollar on the country's manufacturing sector for export trade will be mostly felt in Southern Ontario and Quebec; however, both regions are demonstrating considerable resiliency, with a concerted effort by both governments and industry underway to improve productivity and improve international competitiveness.

U.S. Economy

In sharp contrast to the weakening U.S. economy and deteriorating housing market, Canada's economy and housing market continues to demonstrate staying power. Canadian mortgage products are markedly different from those offered in the U.S., and the sub-prime market makes up a significantly smaller portion of the overall Canadian mortgage market. It is unlikely that the residential real estate industry in Canada will have to endure the kind of sharp correction underway south of the border.

Employment

Employment rates across the country are expected to continue at the current very high levels, driven by the robust energy and general natural resource sectors specifically, and a very healthy services economy in general. In the year ahead, job market growth is anticipated to continue, especially in Regina, Winnipeg and Halifax.

Interest Rates

The move by the Bank of Canada to reduce its overnight target-lending rate by a quarter of a percent in December 2007 will bode well for first-time buyers planning to enter the market in 2008. The relatively low current interest rates, and the possibility that rates could fall even lower in response to moderating inflation and lower rates in the U.S., will continue to attract new buyers to the housing market.

Summary

Solid economic fundamentals should allow Canada's residential real estate market to chart its own course and maintain its buoyancy in 2008.

December 17, 2007 in Canadian Market Forecast | Permalink | Comments (1) | TrackBack

Emerging Trends in Real Estate

Despite US housing woes Canadian real estate remains upbeat

Leading real estate experts are predicting the US commercial real estate market will slow in 2008 and follow a similar pattern as the current residential market. However, according to the annual Emerging Trends in Real Estate 2008 report, released by PricewaterhouseCoopers (PwC) and the Urban Land Institute (ULI), their Canadian counterparts are much more upbeat.

Now in its 29th year, Emerging Trends is the oldest, most highly regarded annual industry outlook for the real estate industry. The report reflects interviews with and surveys of more than 600 of the industry's leading real estate experts, including investors, developers, property company representatives, lenders, brokers and consultants in both Canada and the US. Other versions of this report are conducted in countries around the world including Asia Pacific and Europe.

According to Chris Potter, PwC partner and leader of the firm's Canadian Real Estate Tax practice, Canada benefits from a more conservative investment environment than the US. "In Canada, institution-dominated markets appear to be avoiding 'transaction mania', but real estate values have reached record highs and a strong economy has accelerated tenant demand for space."

According to American respondents, a healthy correction south of the border will likely bypass long-term investors but penalize late-to-the-game speculators and overleveraged buyers. Canadian respondents to the survey remain positive about sidestepping any serious impacts of this possible US correction. Close to 36% view their prospects for profitability in 2008 to be very good and a further 22.4% say they're excellent.

The strongest areas of real estate business activity for Canadian respondents is predicted to be within real estate services, followed by commercial/multifamily development and homebuilding/residential land development. All property sectors share positive prospects across the country especially industrial and retail with respondents, on average, stating development prospects are expected to be modestly good to good. The residential for-sale market is also expected to fair well, but might need to take a breather as homebuilders cannot keep up with the current pace and single-family housing looks overpriced.

Office stock is seeing limited inventories and dated product fill up with tenants. Except for Montreal, where office vacancies are nearing 9%. Canadian metropolitan areas boast below 5% vacancies, and rents have room to push higher. The survey is also showing that costs and land scarcity is limiting new development. Hotel investment and development prospects are modestly good, and most respondents rate this sector either a buy or a hold. Rental apartments are doing well in major cities with high immigration flows. Primary western cities - Vancouver, Calgary, and Edmonton - are veering toward housing shortages as workers, attracted by a plethora of well-paying jobs, pour into the energy zone. Apartment occupancies are soaring in these areas. Development in other regions remains difficult because of costs and land scarcity.

Canadian Markets to Watch

The report comments on how Canadians like to live and work in central cities, as long as they can afford it. If housing is too pricey in 24-hour neighbourhoods, people move to inner-ring suburbs or beyond and commute back into the cores. Investors, especially the institutions, are concentrated in downtown areas too. Planners and developers focus on infill and more vertical projects, which reinforce the urban cores. The hot-growth energy cities out west - Calgary and Edmonton - score the highest ratings for investment prospects, development, and for-sale housing, although it is not certain whether the recent announcements on royalties will have any effect on this. Toronto, Canada's premier global pathway city, and Vancouver also have high ratings. Ottawa and Montreal follow, with Halifax lagging.

Toronto

Toronto ranks as a major global pathway destination, 24-hour city, and manufacturing hub. Compared with other national financial centers, the city is relatively inexpensive. However, the rising loonie is hurting manufacturing industries, and clouds over the US economy threaten to stall out momentum. Three new office towers are under construction, adding 3 million new square feet of office space. Notably, Office (49.1%), Industrial (46.2%) and Apartments (40.8%) are given solid buys.

Calgary/Edmonton

Calgary is the Canada's "resource" capital and North America's number-one boomtown. Survey respondents foresee strong buys for all sectors: 53.5% give a buy recommendation for Hotel Property, 52.8% for Industrial/Distribution, 48.1% for Retail and Apartment Residential and 44.6% for Office Property. Furthermore, on average the majority of respondents see Calgary For-Sale Homebuilding prospects as very good. Edmonton is closely mimicking the Calgary-style growth wave and as long as demand for energy resources stays strong, this market will continue to do well.

Vancouver

Vancouver's diversified economy is roaring, the mining industry is booming and the city provides a large port and a high-tech center. Outrageous real estate prices frustrate homebuyers and commercial investors and the market is extremely hard to crack. The 2010 Winter Olympic Games is also a growth driver and accordingly 44.7% of respondents give Vancouver a buy recommendation for Hotel Property. A further 43.5% give a buy Retail, 41.3% for Industrial/Distribution and 36.7% for Office Property followed by 34.1% for Apartment Residential property. Vancouver also ranks in the good to very good mark for for-sale homebuilding prospects.

Montreal

Montreal continues to face concerns about market stability and overall growth prospects as major companies no longer choose it as a place to set up shop. But, plenty of government offices fill space. Of the larger cities in Canada, Montreal ranks lowest as a "buy" recommendation in all real estate sectors. However, respondents generally rated all Montreal real estate sectors higher as a "hold" recommendation.

The report notes that best bets for investors for the coming years include a focus on all property sectors in the high-growth western energy markets, hold on central business district office space, develop infill condos near subways stops in Toronto, buy infill sites wherever you can and invest overseas. Potter concludes, "Domestic opportunities are too limited at current prices."

A copy of the report may be purchased here »

November 8, 2007 in Canadian Market Forecast | Permalink | Comments (1) | TrackBack

Ontario housing market forecast

The latest Ontario housing forecast says resale and new home starts will continue to reach record levels through 2008. Canada Mortgage and Housing Corp. says demand for multi-family homes will be a key force in provincial housing activity.

CMHC predicts Ontario resale volumes will hit 214,350 this year and 206,250 units next year. CMHC also predicts prices for existing homes in Ontario will grow about 6.2 per cent this year and by about 3.3 per cent next year.

November 3, 2007 in Canadian Market Forecast | Permalink | Comments (1) | TrackBack

Emerging Trends in Real Estate

American experts weigh in on why the real estate market north of the border remains immune from what's ailing U.S.

The U.S. real estate market is heading into turbulent waters in 2008 but, unlike years past, that won't rock the boat in Canada, according to a major real estate report. While the annual report, released late last week, warns that the U.S. real estate industry "will be walking on egg shells for a while" and anticipates "a long overdue correction," Canada is likely to avoid both scenarios.

"Interviewees remain positive about side-stepping any serious impacts of a possible U.S. correction," the report says. "All property sectors share positive prospects, especially industrial and retail."

The report, titled Emerging Trends in Real Estate, was prepared by the U.S.-based Urban Land Institute and PricewaterhouseCoopers and is based on interviews with real estate executives in both countries.

A decade ago, observers suggest that when the United States real estate market developed a cold, Canada caught pneumonia; that was how mightily U.S. trends influenced Canadian markets. But now the Canadian real estate market has developed immunity from what's ailing the U.S., observers say.

It comes down to some fundamental differences between the economies of the two countries, says Blake Hutcheson, president of CB Richard Ellis Ltd. and one of the report's Canadian sources. He suggests that in areas where we are naturally rich, such as energy and resources, we benefit from huge global demand, which fuels both the economy and demand for all forms of real estate.

At the same time, Canada seems to have proved a better economic manager than the United States, Mr. Hutcheson says. "All those years of significant federal surpluses have given consumers confidence and that confidence shows up in spending," he says - spending on homes, on retail goods, and on business expansion.

The downside is that in those areas where Canada is one small part of increasingly interdependent North American business activity, such as capital markets, we are already being hit with the fallout. The U.S. credit crunch is expected to make money to refinance existing projects or fund new ones either unavailable or more expensive, Mr. Hutcheson says. "In the past, it might have taken up to six months to affect us. This time we started to feel the impact in about two minutes."

Sheila Botting, senior managing director of Canada for the capital markets group at Cushman Wakefield Lepage and another interviewee, says that, during the past 60 to 90 days, the effect of the U.S. credit crunch has been seen in secondary and tertiary Canadian markets - smaller cities, such as Winnipeg.

"In the past, properties there have traded almost on par with major centres when it came to capitalization rates," she says. "Now, the cost of financing is starting to rise and with it cap rates. In some cases, money may just not be available for refinancing some projects or financing new ones.

"It is not serious as yet, but certainly bears watching."

On the plus side, Canada's economy continues to tick along; energy demand remains high and the soaring dollar brings benefits to importers and any company looking to make capital purchases, which are almost always priced in U.S. dollars, says Edward Sorbara, principal in Sorbara Group of Vaughan, Ont., a major industrial sector developer. He, too, was interviewed for the Emerging Trends report.

"One of our saving graces is that the Canadian economy is much simpler than that of the U.S.," he says. "Also, we only have four big cities - Montreal, Toronto, Calgary and Vancouver - and almost all major real estate projects across the country are held by a small group of very professional, very well-funded pension funds, institutions and companies."

He points out that 85 per cent of the office space in Toronto's financial core is in the hands of five large companies and Canada's eight major industrial developers have the resources to supply all the country's needs for factories, warehouses and distribution centres if necessary.

"We have become much more conservative than our neighbours to the south," he says. "We learned lessons from the meltdown of the 1990s. The result is there is no wild rush toward speculative building. We create to meet proven demand."

In major centres, an added benefit is the money currently available to upgrade existing commercial buildings to more energy efficient standards, says Chuck Stradling, executive vice-president of BOMA Toronto, a division of the national organization Building Owners and Managers Association.

"We have $60-million available in Toronto alone," he says. "With rents for office space rising by double-digit levels and vacancy rates extremely low, that means more and more building owners are upgrading properties. They know if they renovate, if they become 'green' and energy efficient, they can both fill their buildings and charge rents that provide a quick return on their investment."

In short, Canada's combination of natural resources and solid conservative management seems to have created a buffer against some of the problems affecting U.S. real estate, observers say.

"The strength of the markets will vary from city to city and province to province depending on the underpinnings of local and regional economies," Mr. Hutcheson says. "but, all in all, Canada has much brighter expectations than the United States for 2008."

Where the trends are:

All commercial property categories - office, retail, industrial and residential - in any of Canada's high-growth energy markets, particularly Edmonton and Calgary. Demand for oil is expected to continue strong globally and that will fuel the need for almost anything with four walls and a roof.

With office vacancy rates in low single digits in all major markets, demand for office space is outstripping landlord's ability to satisfy it. The result is certain to be rising office rents and solid sustainable returns.

Buy infill sites wherever you can. Many Canadian cities have stopped growing out and have started to grow up. Shortages of land ready for development have placed the focus for new projects, especially residential and retail, on existing infill sites. Old apartment structures are making way for new condos; brownfield sites are becoming malls or new residential communities.

Develop condominiums in Toronto, especially near subway stops. With 100,000 new immigrants every year, Toronto's demand for residential properties will likely remain strong. But low mortgage rates will be key: It seems to be monthly carrying costs, not purchase price, that drives this market.

Invest overseas: The indisputable fact is that Canada is a limited real estate market, especially at current purchase prices. Major pension funds and development companies have already caught on to the need to look further afield for opportunities. You will now find Canadian pension funds building shopping centres in Brazil and residential projects in China.

Source: Terrence Belford

October 23, 2007 in Canadian Market Forecast | Permalink | Comments (3) | TrackBack

Real estate market remains healthy

Toronto-Dominion Bank reports on the housing market

The pace of home sales in Canada is “likely to cool” a bit next year, but housing market conditions will remain healthy, Toronto-Dominion Bank said in a report Friday. The TD economists predict that the pace of resale activity in 2008 will “pare back moderately by 4 per cent from this year's peak; price gains will ease from 10 per cent to 7 per cent; and housing starts will continue to edge down, to 204,000 units.”

The bank said the current pace of activity across Canadian markets, particularly in Western Canada, is not sustainable “and some easing in activity is a good bet.” However, “a U.S.-style correction is not in the cards,”.

“As we watch the unfolding of a severe housing market correction in the United States, Canadian homeowners and investors might be asking themselves if such a scenario is likely to occur in their own market.”

Reuters news agency reported Friday that a survey it co-sponsored with the University of Michigan found that “a record 26 per cent of U.S. homeowners say the value of their homes has fallen during the past year, above the previous peak of 24 per cent seen in 1992.

The TD economists said a huge oversupply has contributed to the slump in U.S. home sales. “Much of the run-up in home prices was also led by lax mortgage financing conditions, which do not prevail in Canada,” the TD report said.

In Canada, the average resale price of a home “will grow by about 10 per cent this year, continuing an ascent that will push the yearly average resale price of a Canadian home to above the $300,000 mark,” according to the report.

“At the same time, evidence is building that the sizable divergence in average resale price gains between the white-hot Western markets and those of the more balanced Eastern markets has begun to narrow.

“Notably, in Vancouver and Calgary, a substantial erosion in affordability over the past few years has started to weigh on demand,” the TD economists wrote. “This development, combined with a surge in new listings, has started to bring those markets back down to earth.”

The economists said the cooling in housing activity “should proceed in an orderly fashion” in Canada.

See full report »

September 23, 2007 in Canadian Market Forecast | Permalink | Comments (1) | TrackBack

Housing boom will falter, bank says

Canadian home prices deviating from long-term trends

Continuing tight supply-demand conditions have lifted real housing valuations in Canada above their long-term trend, raising the risk of an eventual softening in prices, according to the latest Real Estate Trends report, released yesterday by Scotia Economics.

"The fundamentals underpinning Canada's housing market are still quite good," said Adrienne Warren, Senior Economist, Scotia Economics. "Unemployment is low, immigration is high and apartment vacancy rates are tight. There is little evidence of overbuilding or speculative buying. The industry also has relatively little direct exposure to subprime lending, with these loans accounting for only about five per cent of domestic mortgages in recent years compared with about 20 per cent in the United States.

"Yet, there is little doubt that current trends are unsustainable," added Ms. Warren. "Affordability is becoming increasingly stretched for many would be buyers after almost a decade of rising home prices. More recently, economic risks have increased in the wake of the intensifying financial market turmoil stemming from the U.S. subprime mortgage problems."

Moreover, from a long-term perspective, there is growing evidence of overvaluation in home prices in some parts of the country, a precursor to a period of softening conditions. In all 15 cities examined in the report with the exception of St. John's, current inflation-adjusted price levels are above their long-term trend. The national average deviation at mid-year was roughly eight per cent, however, there are big regional variations, ranging from just one per cent in Ottawa to 25 per cent in Edmonton.

"Some deviation from underlying trends is to be expected at the late stage of a housing boom," said Ms. Warren. "At the peak of the prior two housing cycles in 1976 and 1989, national home prices were 12 per cent and 18 per cent, respectively, above their long-term trend. The smaller degree of overshooting this time around, and the sustainability of price appreciation, may reflect in part an undervaluation of Canadian real estate prices in the late 1990s and into the early part of this decade."

Canada also ranks relatively low in the degree of house price overvaluation relative to other major developed nations. The economist estimates that average real home prices in the United States carried a near-record 14 per cent premium in 2005. U.S. average valuations have since slipped below trend amid a large and growing supply overhang and weakening demand.

Despite the deviation in the level of Canadian home prices from long-term trends, price growth remains consistent with short-term supply-demand dynamics. Most major markets in Canada are still categorized as sellers' territory in which prices would be expected to rise faster than inflation. By and large, those cities enjoying the biggest price increases are also facing the tightest supply-demand conditions, including Regina and Saskatoon.

"The further domestic home prices climb above underlying economic fundamentals, the greater the risk of an eventual correction," said Ms.Warren. "The 1976 and 1989 housing peaks were both followed by some adjustment in real prices. In the past, this adjustment has normally occurred though a period of inflation erosion as opposed to nominal price declines."

Source: Scotiabank Real Estate Trends Report »

September 14, 2007 in Canadian Market Forecast | Permalink | Comments (0) | TrackBack

Condos Are A Lofty Concern

While American home building and sales have cratered and prices have dipped 3.2% on the year, Canadian resales rose nearly 10% in July to a new record and average prices jumped 12.6 per-cent to a record $311,495.

Toronto high-rise sales, meanwhile, are in their second year of 24% increases year-to-date. The luxury hotel-condo -- usually commanding the top floors of some architectural jewel and bearing a marquee name like Ritz or Four Seasons -- is the latest boom's must-have.

"It is now common to see 2,000-to 2,500-square-foot condos selling for $2-million or more with property taxes and condo fees to match," Sherry Cooper, chief economist at BMO Capital Markets, said in a recent note. "Per square foot, condo prices are now higher than single-family home prices of similar quality and location."

At the Four Seasons hotel-condo in Yorkville for example, a 2,500-square foot condo sells for more than $4-million; a 3,900-square-foot penthouse has a $7.4-million price tag.

Although the prices may not be quite so lofty, they are racing across the country, too, with Saskatoon joining Calgary as the latest hot spot.

Analysts are at pains to point out how the Canadian market is in much better health than the United States.

The current subprime default rate in Canada is less than 3% compared with 13% and growing for the United States," Warren Lovely, economist at CIBC World Markets said in recent note. And there isn't much subprime debt in Canada anyway. It accounted for barely 5% of mortgage originations during 2005-06, well below the 20%-plus share in the United States.

As well, Canadians have taken out fewer mortgages with teaser or adjustable rates and they have traditionally relied less on home lines of credit to fuel consumption.

Builders and lenders in Toronto, burnt by the 1990 real estate bust, are smarter too.

"There's a healthy amount of discipline that has been inserted into the Canadian system that was a direct result of the problems of '89, '90, '91," said George Carras, vice-president at RealNet Canada Inc. Typically a project is 60% to 70% sold before a shovel breaks ground. Deposits are also quite significant and required at various milestones over the course of construction.

See atricle by Jacqueline Thorpe in the Financial Post »

September 4, 2007 in Canadian Market Forecast | Permalink | Comments (0) | TrackBack

MLS sales forecast revised upward

Fueled by record activity levels during the first half of the year, national MLS® home sales activity is expected to reach record levels again in 2007, according to a new residential forecast prepared by The Canadian Real Estate Association.

National home sales are forecast to rise by 8.1 per cent to 523,100 units in 2007, and will set new annual records in most provinces. Activity is forecast to edge slightly lower in 2008, but will reach the second highest annual level on record in almost all provinces. Prices are forecast to set new records in every province this year and in 2008, but price increases will be smaller next year.

Resale housing markets will continue to become more balanced in British Columbia and Alberta. Even so, markets will remain tightest in the Western provinces where annual price increases will be greatest. In other provinces, the resale housing market is forecast to be tighter in 2007 than it was last year, but it will become more balanced as housing prices increase and higher interest rates further impact affordability.

The MLS® residential average price is forecast to set new records over the next two years in all provinces. Price increases are forecast to become smaller as the resale housing market becomes more balanced in 2008.

Resale housing activity is projected to ease gradually in all provinces. New listings are forecast to rise further in all provinces except Alberta, where they are projected to retreat after spiking in the second quarter.

“Resale housing activity was a juggernaut in the second quarter of 2007,” said CREA Chief Economist Gregory Klump. “Record breaking sales activity in the first and second quarters forced The Canadian Real Estate Association to revise its forecast upward.”

“Home buying sentiment remains upbeat in all regions and mortgage financing is still within reach for many potential home buyers,” Klump said. “The resale housing market will become more balanced as rising prices and higher mortgage interest rates gradually impact affordability. Strong employment numbers will keep sales activity strong, even as prices and interest rates continue to rise.”

“Consumers continue to have strong confidence in Canada’s resale housing market, and activity is on track to set a new annual record in 2007,” said Ann Bosley, President of The Canadian Real Estate Association. Bosley notes the Canadian market has shrugged off the subprime problems that have been affecting the housing market in the United States, and a number of investment funds.

According to CREA’s forecast, the resale housing market will become more balanced next year, but negotiations will continue favoring the seller in most provinces. “For local market expertise and sound advice, consumers should consult their real estate professional,” added Bosley.

August 20, 2007 in Canadian Market Forecast | Permalink | Comments (4) | TrackBack

New housing market expected to fall

Less available land and a price gap with resale market is causing new home starts to drop, report finds

Ontario's new construction market will continue its decline this year and next in the face of higher home prices and increased mortgage costs, says a report by the Canada Mortgage and Housing Corp. The agency predicted housing starts for Ontario will fall to 66,950 in 2007 from 73,417 in 2006. They will drop further to 64,500 in 2008.

"The new construction market share of total home purchases has been dropping over the last several years," said Ted Tsiakopoulos, an economist for CMHC.

"One of the reasons is we are running out of land to build on, and if you look at the average price of a new single-detached home, it is clearly outstripping the price of a resale detached home."

He said the price gap is pushing buyers to the resale market.

Meanwhile, national housing starts are expected to fall from 227,395 in 2006 to 207,200 in 2008.

In Toronto, it was the same story as housing starts are projected to fall to 34,500 in 2007 from 37,080 in 2006. In 2008, this number is expected to decline to 33,500.

But analysts say that, despite these projections, Ontario's housing market remains on solid ground due to a powerful home resale sector. In fact, CMHC says the province's resale sector is expected to reach record territory in the coming months. Resale volumes will hit 209,500 this year and 202,000 in 2008.

"Stable job market conditions, slight improvement in affordability, combined with high level of consumer confidence are really translating into a healthy pace of housing demand in Ontario," Tsiakopoulos said.

In Toronto, resale volumes are expected to grow to 90,000 in 2007 and 87,000 in 2008. They were 84,842 in 2006.

"Prices in Toronto will run closer to the rate of inflation whereas, in hotter markets such as Hamilton, Sudbury and London, we will see prices growing well above the rate of inflation," Tsiakopoulos said.

It's not inconsistent that while housing starts are declining that the resale market can remain strong, said Doug Porter, an analyst with BMO Capital Markets.

"The big picture overall is the housing market is holding up quite well in Ontario given that the province is seeing some of the slowest growth in the country," Porter said.

And in spite of the falling house starts, the Conference Board of Canada noted in a separate report that builders can expect profits to jump to $4.5 billion in 2007 due to increased prices and demand.

Toronto's condo market continues to prosper, Tsiakopoulos said, because of demand by both empty nesters and first-time buyers.

August 16, 2007 in Canadian Market Forecast | Permalink | Comments (3) | TrackBack

Real Estate agents turning green

Toronto Real Estate Broker wants energy evaluations

A Toronto Realtor who is setting up a national green real estate association says every Canadian home should have a mandatory energy evaluation before it can be put on the market. "Within five years, we hope to have mandatory energy audits right across Canada on every resale home," says Elden Freeman.

Freeman plans to join forces this fall with James Rogers, a real estate agent in British Columbia, to develop a program to help teach Realtors how to promote green homes and encourage homeowners to make energy-efficient upgrades. "Realtors have a huge opportunity to be very effective communicators," said Rodgers. "They're the ones sitting down at kitchen tables chatting about houses."

Rodgers began his green realty company in the Kootenay region 18 months ago. He offers buyers $500 towards an energy audit or site assessment for solar, wind or micro-hydro system. He also uses such tools as a solar pathfinder to tell clients how much sunlight they'll have for their solar panels or gardens.

He and Freeman believe mandatory energy evaluations -- which assess insulation, appliances, furnaces, air conditioners and exhaust fans, and measure how airtight a home is -- are the way of the future. "

Hundreds of Realtors have taken the first course Freeman set up on energy efficiency, which can earn Ontario real estate agents RECO credits. Participants learned what to look for while examining houses, how to help clients collect rebates for upgrading energy efficiency, find an energy auditor, and determine which changes to make. A new course this fall will examine sustainable design.

Freeman plans to add courses in 2008 on healthy homes and green financing. Real estate agents and brokers are good at "staging" a home to boost its curb appeal, but rarely mention energy-efficient windows, insulation, low-flow showerheads or high-efficiency furnaces, Freeman says.

July 28, 2007 in Canadian Market Forecast | Permalink | Comments (3) | TrackBack

Canada's housing market forecast

Average house prices set to rise by 9.5 per cent nationally

Canada's resale housing market finished the second quarter on strong and steady footing; surprising many by its astounding momentum. Healthy and robust conditions are expected to prevail through to year's end as all regions are poised to experience a rise in average house prices, with double-digit gains forecast for Edmonton, Calgary, Winnipeg and Regina, according to a report released today by Royal LePage Real Estate Services.

Echoing the growth and activity experienced in all Canadian markets in the first half of the year, the national average house price is forecast to rise by 9.5 per cent, passing the $300,000 mark for the first time, to $303,300. Home sale transactions are projected to rise by 8 per cent to 522,306 unit sales by the end of 2007.

"The momentum from the year's extraordinary start spilled into the second quarter, compounding typically busy spring market activity and stimulating solid price appreciations in almost all regions of the country. These conditions will certainly be an impetus characterizing Canada's real estate market through to year's end," said Phil Soper, president and chief executive officer, Royal LePage Real Estate Services. "As we move into the second half of the year, we continue to expect areas of aggressive price appreciation in the west, and modest, mid-single digit price increases in Central and Atlantic Canada."

Added Soper: "The most profound story in Canadian real estate today is the extraordinary interest that people across our country continue to have in buying and selling homes. The sheer number of homes trading hands this year has far exceeded consensus expectation. This market continues to show strength as we move into the second half of the year."

New to the stage of regional players exhibiting extreme home sales activity and searing house price increases is Saskatchewan. Record numbers of homes sold in both Regina and Saskatoon in the second quarter as intense demand was driven by a swell of in-migration of Saskatchewanians returning from expensive Alberta living. These frenetic conditions are expected to continue, albeit at a slightly more temperate pace.

Energy rich Alberta's potent economy continued to attract in-migration; however, the runaway prices and activity that have characterized Calgary and Edmonton for the past eighteen months have started to ease and will continue to return to more manageable conditions as the year presses onwards. Most notable during the second quarter was the change in Calgary's inventory levels, which increased substantially as some sellers decided to cash in on their home equity. This increased supply, combined with the natural dampening effect that high prices have on demand, is leading to more balanced conditions and a stabilizing of average price appreciations.

Looking ahead, Central Canada should continue to enjoy balanced market conditions. More modest increases can be expected as we move into the traditionally slower second half of the year. The combination of healthy regional economies and job markets, population growth and the recognition that real estate is a sound investment, will continue to attract buyers and bolster demand for housing.

In Toronto, an unseasonable spike in activity may occur in the fall as some buyers react to the city-proposed increase in land transfer taxes for the area, jumping into the market before the proposed taxes are to go into effect.

Anticipated growth of the oil sector in St. John's, Saint John and Fredericton is expected to create an abundance of jobs in Atlantic Canada and maintain the buoyancy of the eastern market, compensating for the significant loss of trades people who have flocked to Alberta.

"During the first half of the year, strong economic fundamentals fuelled consumer confidence and reasonable affordability drove housing demand across the country. In most provinces, inventory levels were up slightly year-over-year, helping to balance the national market," commented Soper.

Of the housing types surveyed, the highest average price appreciation occurred in detached bungalows, which rose by 15.4 per cent to $338,738, followed by standard two-storey properties, which rose to $399,469 (13.2%), and standard condominiums, which increased to $238,784 (15.1%), year-over-year.

Regional Market Summaries

The housing market in Halifax maintained its strength during the second quarter and is expected to remain healthy through the remainder of the year. First-time buyers drove much of the quarter's market activity, with properties priced under $300,000 in greatest demand.

The housing market in Moncton experienced strong sales activity during the second quarter, while a decrease in listings helped push the market in the seller's favour. Affordability remains good in Moncton as the city offers the most affordable real estate in the province. The market is expected to remain strong for the rest of the year with prices increasing slightly and sales activity continuing to flourish.

Saint John's robust economy and high consumer confidence helped fuel real estate activity prompting average price increases during the second quarter. Saint John is gradually becoming the energy hub of the east coast as a new oil refinery has been built and projects, such as the refitting of the nuclear generating plant are slated for the near future.

In Charlottetown, the housing market experienced a strong start to the second quarter and began to moderate towards the quarter's end, resulting in modest average price increases. Contributing to the slight decrease in activity during the quarter was the provincial election, which resulted in a new government. The three year freeze on assessments that the new government is imposing should also help the market conditions.

Activity in St. John's remained stable and average house prices increased during the second quarter, as the city began to experience a shortage in inventory. A strong economy and high consumer confidence were supported by the recent excitement that the long awaited local oil project Hebron Ben Nevis is on again. Affordability is good and there is nothing to indicate anything but a healthy market going forward.

Pressuring prices upwards and maintaining buoyancy in the market, the strong buyer demand in Montreal led the city to experience a stronger than expected second quarter. With inventory levels slightly elevated from this period last year, the market shifted to more balanced conditions from the seller's conditions, which typified the market over the past few years. Westmount remains a popular neighbourhood among young professionals and baby boomers who are drawn to the cache of the established area. Due to various sound fundamental underpinnings, Montreal is poised to enjoy a healthy housing market through to year's end. High consumer confidence, robust demand and a healthy economy will continue to help fuel demand and keep the market moving at a strong pace.

Toronto's resale housing market experienced a strong second quarter, characterized by record-breaking activity and rising average house prices. Toronto's better than expected second quarter was defined by intense demand that was only barely met by inventory levels. Multiple offer situations occurred frequently on detached homes, resulting in decreased average listing periods from this time last year. Looking ahead to the end of the year, the housing market is expected to continue to enjoy strong, yet slightly slower activity, accompanied by modest rates of price appreciation.

Ottawa maintained the title of Canada's most stable housing market due to unwavering demand being met by a comparable level of inventory, resulting in moderate average house appreciations. All purchaser groups were very active during the second quarter, with many first-time homebuyers taking advantage of relatively modest interest rates. Ottawa's housing market is poised to perform as it has been throughout the second quarter: strong and steady, with average house prices rising moderately, while the market remains balanced.

Winnipeg's housing market sizzled through the second quarter, and will continue to do so for the remainder of the year. The recent Manitoba election prompted increased government spending, particularly on infrastructure, which has led to the creation of a strong job market and the rejuvenation of several neighbourhoods, attracting an increase in buyers. The condominium market remains a bright spot in Winnipeg as many first-time buyers and baby boomers flock to the maintenance-free lifestyle this housing type offers. Despite new condominiums coming on stream in 2007, fierce demand will hold a tight grip on inventory levels.

Regina experienced a booming housing market, supported by the city's extraordinary job market and diversified economy. Recent proactive media campaigns in the western provinces promoting Regina as a great place to live attracted many buyers to the city. New to Regina's housing landscape is the rapid growth in the condominium market, which have become the favoured choice of first-time buyers entering the market.

With the same fundamental conditions in tact as in Regina, market activity in Saskatoon was frenetic during the second quarter; with even more significant price appreciations recorded. Very limited supply, coupled with fierce demand, drove prices up in all housing categories, with huge appreciations in the condominium sector. The brisk activity and rising prices have also had a ripple effect into neighbouring areas. The typically slower market in Swift Currant has been invigorated by a spill over of buyers from Saskatoon. Despite the rapid spike in average house prices, market activity began to stabilize at the end of the second quarter and is expected to continue at a slightly more temperate pace, yet still very strong, for the remainder of the year.

In Calgary, sellers cashing in on home equity gains caused housing inventory to rise, which led to more moderate price appreciations compared to the steep appreciations and frenzied activity that occurred last year. Multiple offer situations still occurred during the second quarter, but with less frequency than in the past few months. Listing periods increased slightly over last year with houses remaining on the market 35 per cent longer. While Calgary's market is expected to remain strong and healthy throughout 2007, the city is not expecting to experience the conditions that characterized the market for much of 2006.

Edmonton's housing market enjoyed a robust second quarter with significant double-digit price appreciations. For the majority of the second quarter Edmonton experienced strong demand that outpaced supply, resulting in an abundance of multiple offer situations. The condominium sector experienced tremendous gains during the second quarter as a number of new projects came on stream pressuring prices upwards; most notably, in Riverbend/Terwilliger the price of a standard condominium reported average house price increases of 100 per cent. While house prices are forecast to stabilize during the next two quarters, the housing market is poised to remain healthy and strong for the remainder of the year.

Vancouver experienced a traditionally strong spring market achieving record sales due to a steady increase in demand. The condominium sector experienced busy activity during the second quarter as buyers increasingly favoured the low-maintenance lifestyle that condominiums offer; however, supply could not satisfy demand. Construction of new condominium projects is limited as the city is approaching a build out, and reaching full building capacity within the downtown peninsula, placing a cap on future inventory. Strong consumer confidence, buoyed by economic prosperity in Vancouver is expected to stimulate strong housing market activity for the remainder of the year.

Victoria's housing market experienced a rise in average house prices during the second quarter, due to the combination of a hot job market, high consumer confidence and low inflation. Steady buyer demand was evident in all housing types; however, condominiums received the most notable attention. Although there has been an increase in inventory in the second quarter, multiple offer situations continue to characterize Victoria's market, with listing periods lasting an average of 30 days.

July 5, 2007 in Canadian Market Forecast | Permalink | Comments (0) | TrackBack

Hot Canadian real estate market

MLS® resale housing market shatters records in May

Residential sales activity, MLS® sales, new listings, average prices and dollar volume in Canada’s major markets broke all previous monthly records in May, according to statistics released by The Canadian Real Estate Association (CREA). Actual MLS® home sales activity in Canada’s major markets was up 11.6 per cent year-over-year to 42,039 units in May 2007. Led by year-over-year gains in Toronto and Montréal, this was the first time in history that sales activity in Canada’s major markets surpassed 40,000 transactions in one month.

On a seasonally adjusted basis, activity rose by 1.3 per cent from the previous month to 31,053 units in May. The increase was fueled by a monthly increase in activity in Vancouver, Winnipeg, London & St. Thomas, Ottawa and Montréal. Seasonally adjusted sales activity set new monthly records in Winnipeg, Ottawa, Montréal and Saint John, and reached the second highest level on record in Saskatoon, Regina and Toronto.

“Dramatic price increases and additional listings in Alberta’s major markets are causing some buyers in that province to take a bit longer to make a purchasing decision,” notes CREA Chief Economist Gregory Klump.

Year-to-date transactions also set new records in most major markets in May. Transactions via Board and Association MLS® systems numbered 165,800 units in Canada’s major markets during the first five months of 2007, which represents an increase of 8.5 per cent over the same period last yea