Renters are having an easier time finding accommodations in Victoria this year. A sluggish local economy and labour market, and a recent surge in homeownership has moved vacancy rates up. As the level of employment has edged lower, relatively fewer people have moved to the region. Historically low mortgage rates and lower home prices reduced monthly mortgage carrying costs, and encouraged some renters to exit the rental market in favour of homeownership. Near record levels of apartment condominium resales recorded across Greater Victoria during the second and third quarters of 2009 reflected this movement from rental to homeownership.

Vacancy rates for both apartments and town homes moved up in the Victoria CMA over the past year. The average apartment vacancy rate edged up to 1.4 per cent, following four years at 0.5 per cent. Similarly, the average vacancy rate for rental townhouses shifted up from 0.1 per cent last October, to 1.8 per cent in October 2009. The trend of increasing vacancies was widespread in the region. Higher vacancy rates were observed across all Greater Victoria municipalities. Both the one and two bedroom segments of the local apartment rental markets recorded increased vacancies. While apartment vacancy rates in Victoria increased in 2009, they remain low compared to other major British Columbia markets (2.1 per cent in the Vancouver CMA and 3.0 per cent in the Kelowna CMA) and the provincial average (2.8 per cent).1

Softer demand for rental housing in 2009 has put less upward pressure on rents. Average one and two bedroom apartment rents edged up 4.5 and five per cent in 2009, respectively.2 This growth was less robust than the 6.8 per cent average rent increase in 2008, when vacancy rates were at their lowest. A substantial range exists between the rents observed across Victoria CMA municipalities. For an average two- bedroom apartment, Oak Bay was home to the highest rents ($1,206), while the lowest rents were found in Esquimalt ($858). When compared to the provincial average, two-bedroom rents are on par, while average one- bedroom rents are eight per cent lower in Victoria.

According to the latest Rental Market Survey data collected in October by CMHC, the average vacancy rate in privately initiated rental apartments in the Ottawa Census Metropolitan Area (CMA) increased only slightly from last year to 1.5 per cent. Consequently, Ottawa remained one of the tightest rental markets in Ontario.

The low vacancy rate was the result of two contrary influences. On the one hand low borrowing costs coupled with steady employment conditions in the Capital City gave many renters the right incentives to jump into the homeownership market pushing the vacancy upwards. On the other hand minimal rental apartment construction and fewer secondary rental market units kept vacancies low. While both influences roughly balanced each other out, the outflow of households from rental accommodations into homeownership was relatively stronger.

Availability rate is a slightly broader indicator than the vacancy rate, as it captures both the currently vacant rental stock and the stock for which the tenant has given or received notice to vacate. While the vacancy rate remained largely stable at a low of 1.5 per cent, the availability rate jumped from 2.9 per cent in 2008 to 3.5 per cent in 2009.

This suggests that it is possible that some buyers, who are currently renting, have not taken occupancy of their new homes yet, but have already given their landlords their two months notice. The slight jump in availability could also indicate that in Ottawa’s tight rental market, leased units are occupied quite rapidly after they become vacant, maintaining a stable vacancy rate.

Employment performance among first time buyers’ ages 25 to 44 years old has been very resilient, remaining on par with levels this time last year. Labour market recovery for this age cohort has been remarkable and has enabled some potential first time buyers to take full advantage of declining borrowing costs. An economic environment of low interest rates unleashed the pent-up demand accumulated early in 2009. As a result, the movement out of rental and into homeownership in this age group has been significant, pushing vacancy rates upwards.

Another factor supporting the increase in vacancy rate is the weak employment performance among young renters. The age cohort between ages 18 to 24 has been the weakest when compared to other age groups. Total year-to-date full time employment is down 8.7 per cent from last year. Rising unemployment within this age group has obliged some young adults to remain in their parental home, dampening the rate of household formation.

The Barrie CMA rental market experienced softer conditions in 2009. The average vacancy rate for purpose- built rental apartments rose up by 0.3 percentage points this year to 3.8 percent. Several factors contributed to easing demand, including a rebound in homeownership demand and high youth unemployment. Continued moderate migration into Barrie supported demand.

Supply, also, was virtually unchanged, increasing by only 15 units. There were no new purpose-built apartments, but the number of units in the existing universe increased for a variety of reasons.

With a softer rental market the growth in average monthly rent for a two-bedroom unit slowed significantly from last year and came in at 1.2 per cent, well the below the maximum rent increase stipulated by the province.

The economic adjustment has affected employment prospects in Barrie for all age cohorts, but in particular the youngest age cohort of 15-24. This group makes up a significant proportion of Barrie’s labour force, given the region’s overall young population and is also a key source of rental demand. The proportion of the labour force in Barrie made up by the 15-24 year-old age group this year has averaged close to 20 per cent. Both full-time employment and part-time employment for this age group have been trending down. With a slowly recovering economy, young people who had been renting returned to the parental home or doubled up with other youth, while those currently living with parents are staying at home until the economy recovers further.

The rate of migration into Barrie has slowed. Nevertheless migration into Barrie from within Ontario is higher than it is in most other Ontario centres. Moveover, slightly fewer people are moving away from Barrie to other parts of the country. Immigration and births added to the slower, but still significant, population growth rate. A growing and relatively young population continues to support rental demand.

With mortgage carrying costs down due to record-low mortgage rates, first-time buyers have exited rental into homeownership thereby increasing the overall vacancy rate.

The decline in mortgage rates in 2009 put mortgage carrying costs back to where they were in 2006. These payments hit a low in the second quarter, which coincided with an improvement in the employment prospects for the 25-44 year old age group. This is the same age group from which many first-time buyers are drawn, so the surge in existing home sales beginning in the second quarter likely included many purchases by people who were renting at the time.

Renters who move into homeownership usually have relatively high incomes compared to other renters and often occupy the larger, more expensive rental accommodation before their move. Given the significance of the secondary rental market in Barrie, in particular, the number of rented single-detached homes, a number of first-time buyers would be coming from the secondary rental market. As a result, the movement to home ownership in Barrie resulted in a relatively small increase in the primary rental market vacancy rate since some the impact was absorbed in the secondary rental market.

According to the results of the Rental Market Survey conducted by CMHC in October, the market remained tight in the Québec CMA, as the vacancy rate stayed at 0.6 per cent. As well, the availability rate, which measures the percentage of units up for rent, was also low (1 per cent). This indicator revealed that a small proportion of tenants intend to put an end to their leases. The percentages of vacant units and available units on the market were therefore low. Demand for apartments has been strong, and supply has increased only slightly in recent years. The economic conditions prevailing in the area have contributed to maintaining demand for rental housing, with the low unemployment rate and solid job market having stimulated the formation of young households and the migration of workers to the CMA. In addition, youth employment rose this year. It should be noted that young households with a primary maintainer aged under 25 years are most often (9 times out of 10) renters.

The Québec CMA has the tightest rental market in the province. And, the Québec area, along with the Regina CMA, also had the tightest rental market conditions in the country. Across the province of Quebec, conditions remained stable in the Gatineau, Montréal and Saguenay areas, as well, while they eased in Sherbrooke and Trois-Rivières. Vigorous demand Since the beginning of the decade, the rental market has been tight in the CMA. It should be pointed out that employment has grown and that the unemployment rate reached an all-time low in 2008 (4.5 per cent). During the first half of 2009, the labour market resisted the global recessionary climate, as employment increased in the first two quarters. However, a decline was noted in the third quarter. In the end, the number of jobs should remain stable in 2009 and rise slightly in 2010 (+0.5 per cent). This contrasts with the conditions observed in the other urban centres across the province, where decreases in employment have been noted since the beginning of the year.

The economic conditions therefore remained favourable in the area, as net migration rose to 4,350 people in 2007/2008, for a gain of 6 per cent over the year before. According to the available data, net migration will be high in the area for the current decade, reaching a total of about 40,000 people, compared to just 20,000 during the 1990s. The large number of new residents is significantly fuelling demand for rental housing. In fact, interregional migration is considerable and mainly composed of young people aged from 15 to 24 years (66 per cent). The international migration component has also increased in recent years, but the area is still losing some residents to other Canadian provinces.

Construction stimulated by market conditions In 2007 and 2008, traditional rental housing construction was less significant than in previous years. This situation, combined with a steady demand, contributed to maintaining the tight conditions observed on the market in the area. Between 2008 and 2009, 459 traditional rental housing were completed, which reflects a small increase in supply, considering the size of the Québec area market and the strong demand. This year, however, construction was more vigorous. In all, 924 traditional apartments were started from January to October 2009, compared to 423 during the same period in 2008.

Market very tight for larger units The larger the unit size, the tighter the market conditions as, in October, the vacancy rate was 0.1 per cent for three-bedroom apartments, compared to 1.6 per cent for bachelor units. The availability rate was also lower for larger apartments (0.5 per cent). As well, the supply of such units was more limited, accounting for an estimated 14 per cent of the universe1. with 10,400 three-bedroom apartments out of a total of 71,900 units. Two-bedroom apartments, for their part, made up 51 per cent of the survey universe.

Conditions tight in all market zones The conditions prevailing in the nine market zones in the CMA reflected a strong demand in all sectors. However, the rental market in the Haute-Ville zone has eased slightly since last year, as the vacancy rate there rose from 0.7 per cent to 1.4 per cent. And, the availability rate in this zone reached 2.2 per cent this pas October–the highest in the area. The estimated change in the average rent could explain this easing of the market in the Haute-Ville zone, as rents there rose by 4.5 per cent over 2008, for the strongest increase among all market zones in the Quebec area. In addition, this zone has the highest rents, with the average rent for two- bedroom apartments having reached $881 per month this past October, or 30 per cent more than the average for the CMA ($676 per month).

It should be noted that the western part of the South Shore (Charny, Saint-Romuald, Saint-Jean- Chrysostome) had a vacancy rate of 0 per cent this past October, compared to 0.2 per cent the year before, while the eastern part of the South Shore (Lévis, Pintendre) saw its market conditions ease this year (with a vacancy rate of 0.9 per cent, up from 0.4 per cent).

The slackness in the resale market has directly impacted the new home market as has the slowing economy. Single-detached starts will fall to 160 units in 2009 and 170 in 2010, as the market comes more into line with long term demographic requirements. CMHC expects 30 row, condominium and apartment starts in 2009 and another 55 in 2010. Relatively tight rental market conditions and reasonable take up of condominium units will result in some of this activity over the next 18 months.

As Figure 2 indicates, there has been improvement in household incomes in Thunder Bay and with required income being more or less flat, affordability has improved. Next year, with home prices and incomes rising modestly, homeownership should remain an affordable option and therefore demand should strengthen slightly.

After rising 4.3 per cent and 5.5 per cent respectively in 2007 and 2008, the New Home Price Index for Sudbury-Thunder Bay will rise in 2009 and 2010 but only modestly given the slowdown in demand.

Vacancy rates have come down steadily since 1998 in Thunder Bay while two bedroom rents are the lowest amongst other centres in Ontario. Lack of new supply and healthy demand due to strong enrolment numbers at Lakehead University and Confederation College contribute to the demand picture, not-to-mention in-migration from Northwestern Ontario from retirees and education and/or job seekers. CMHC expects the vacancy rate to fall again in 2009 to 1.6 per cent before increasing to 2.0 in 2010 as resale market activity picks up bringing households out of rental housing into homeownership. Rents should escalate in 2009 and 2010 given continued strong demand for rental accommodation.

Developers have plans for condominium in 2010 and beyond. A steady supply condominium units coming onto the market over the last twenty years has given Thunder Bay a nice mix of housing. This type and tenure of housing gives the city some allure, especially as empty nesters from the region look to retire to this city. Pricing will be very important as this product is primarily targeted at empty nesters who do not typically want to pay more for a condo than what they obtain from the sale of the family home or other homeownership unit.

After hitting a record high in 2008, Thunder Bay sales have fallen 18 per cent in 2009. July was the only month to register a year-over-year increase in sales. Sales will fall twenty per cent in 2009 and CMHC estimates a relatively small six per cent increase next year to 1,400 sales. Expect a gradually improving economy as low mortgage rates will positively impact the market next year.

The shortage of active listings in the Thunder Bay existing home market will exert pressure on prices. Although sales are still reasonably solid given last year’s all-time record in the Thunder Bay market, the sales to active listings ratio is unquestionably in a strong balanced to seller’s market position. The supply- demand relationship will cause price appreciation to continue barring some unforeseen economic shock. Watch for average prices to rise four per cent in 2009 and another four per cent in 2010.

The new home market in the Greater Toronto Area (GTA) will see sales activity rise slightly this year in comparison to 2008. The low-rise housing segment will be credited for the increase in sales in 2009 while the high-rise sector will outperform in terms of sales growth next year. Total new home sales will reach 28,500 units this year and remain steady at 29,000 in 2010 — well below the annual average for the new millennium.

For the first time since 2006, low-rise homes will account for the majority of new home sales in the GTA in 2009 and 2010. New low rise home sales will rise by 37 percent this year to 17,000. Although this level is still well below the high reached in 2002, it represents a complete turnaround from last year when sales dropped by over 40 per cent. Low borrowing costs this year are a clear contributor to the rebound in low-rise sales, as is a lack of supply in the resale market. A rise in new listings in the resale market and a reduction in affordability next year will dampen demand for new single-detached homes in the second half of 2010. Total low-rise home sales will move lower in 2010 to 15,500 units — still above the 2008 level. Strong sales for singles in the first part of next year coupled with stable demand for less-expensive semi-detached and row houses throughout 2010 will provide some support for the low-rise segment.

A tougher selling environment for high-rise homes will lead to a sales decline of 23 percent this year to 11,500 units — the lowest level since 2003. More project launches, an improving employment situation for younger workers and a shift towards lower-priced housing types in the second half of next year will boost new high-rise sales in 2010 by 17 percent to 13,500 units. Construction delays and a heightened sense of uncertainty regarding new condominium projects this year has turned buyers away from pre- construction sales offices. At the same time, less project launches have created fewer new options for buyers. Faced with high levels of inventory relative to demand, developers have begun offering generous buyer incentives and reconfiguring remaining units to attract more sales centre traffic. Sales levels have responded and are now much higher than at the beginning of the year. Still, sales are down by over 40 percent in the year-to-date to August and even with further improvement will register an overall decline in 2009. However, current sales momentum will carry into 2010, leading to a much better performance for 2010.

New home construction in the Winnipeg CMA will move upward in 2010 following a slower year for builders in 2009. Local builders are on pace to start 1,925 homes in 2009, a decline of 36 per cent from 2008, before production will move up 25 per cent to 2,400 units in 2010.

To the end of September 2009, total starts are 33 per cent below the same period in 2008, with 1,504 foundations poured compared to 2,247 during the first nine months of 2008. This reduction has been a response to elevated inventories in both the single-detached and multi-family markets as well as a lower level of demand created by the economic uncertainty that existed over the first half of the year.

Given demographic patterns in the Winnipeg CMA, both 2009 and 2010 will see the rate of household formation in the city surpass housing starts. Lower starts to adjust for heightened inventories are necessary to bring levels in line with long term averages and the new home market into balance again.

The single-detached sector will finish 2009 with 1,425 starts, down more than 26 per cent from 2008. Activity will rebound in 2010 when 1,600 starts will be recorded, 12 per cent more than 2009. Price growth will remain positive, but modest, with the New House Price Index rising 2.5 per cent in 2009 and 3.0 per cent in 2010.

While the number of single-detached units under construction has recently moved slightly below the ten-year average at 691 units, the number of complete and unabsorbed units remains high by historical standards at 199 units. That compares to a ten-year average of 169 units. Nonetheless, the decline in starts earlier in the year has allowed for the absorption of many complete and unabsorbed units, which reached their peak of 301 units in November of last year. Despite the recent decline in inventory, builders have been hesitant to start new spec units given current market conditions.

The challenges faced by builders in 2009 are underscored by the 1,053 single starts recorded through September, a decline of 28 per cent from the same period in 2008.

CMHC forecasts total housing starts of 850 units in 2009 and 950 units in 2010. Expect 550 new single-detached homes to break ground in Regina this year, 44 per cent off the 22-year high of 979 units in 2008. Single-detached starts will rise to 600 units in 2010, a nine per cent lift from 2009.

Higher new home inventories and competition from the resale market have prompted builders to scale back construction this year. Demand for new homes is slower due to double- digit price growth in the past two years. Economic uncertainty has also played a role in reducing demand this year. With new home supply past its peak and inventory stabilizing by 2010, builders will drive production up by over nine per cent from 2009 levels. Stable prices, persistently low mortgage rates, and economic growth will also encourage the purchase of new homes.

Seeking to contain inventories, Regina builders started only 337 single-detached homes to the end of August, down 49 per cent from 2008 at this time. As a result, the level of single-detached units under construction declined 23 per cent compared to August 2008. Despite slower starts, the 677 singles under construction this August represent the second highest volume of single units underway for that month since 1984.

As demand has cooled and completions have picked-up, 44 completed single-detached homes remained unsold this August, 42 per cent more than one year prior and the highest August inventory of unsold units in eight years.

Given an average absorption rate of 70 singles per month, it will take the market about 10 months to deplete the 721 single-detached homes in supply this August. One year earlier, the 908 single-detached homes that were in supply could sustain the market for about 15 months, as it was absorbing an average of 60 single-detached units per month. Although market conditions are improving and moving toward balanced conditions, the market is still favouring buyers. Share of starts in

Home sales will continue at a brisk pace through the remainder of this year and into 2010. More sales combined with fewer active listings will push the average MLS® home price higher in 2010.

Home starts will pick up over the next 15 months, but remain below levels recorded in recent years. The upturn in the resale market will contribute to an increase in home starts as builders see demand returning to the market. New and resale home inventories are being absorbed, providing an incentive to start new residential projects.

Steady population growth through migration, an improving job market and low mortgage rates will provide support for homeownership demand through 2010.

Housing market conditions in Greater Vancouver1 will favour home sellers into the first half of next year. The recovery of home sales that began during the spring and summer months will continue into 2010. Home sales ramped up during the past few months due to lower home prices and low mortgage rates. These two factorscombined with increasing real wages, have meant improved affordability for home buyers. While home prices are rising, continued low mortgage rates into mid 2010 will keep home buyers active. Home sales in the first few months of 2010 may be below average, as transportation route changes associated with the Olympic Games hamper mobility.

The number of active resale listings will be near the five-year average level next year. After peaking in fall 2008, active listings have trended lower. While the flow of new listings entering the market has been increasing, high sales levels have kept the total stock of active listings dwindling in recent months. The recent upturn in home prices may draw more sellers to the marketincreasing the supply of homes for sale. Look for more balanced market conditions to prevail in the second half of 2010.
Home prices in most Vancouver

municipalities will continue to trend up in 2010, but at a modest pace of two to four per cent. Home prices hit their lowest point in March of 2009, having fallen 17 per cent from their peak level. In just six months, thaverage price in Greater Vancouver saapproximately two per cent below thpeak value. However, the recovery in home prices has been uneven across the region. While prices in the City of Vancouver have already surpassed the previous peak, prices in other centres remain well below peak levels(see figure 2). These centres with prices still below peak, will see prices trending up over the next 15 months, as buyers take advantage of lower prices and favourable mortgage interest rates.

The Capital Region will experiences increases in existing home sales, and significant residential construction in 2010. Employment growth, continued migration, and low mortgage rates will contribute to the stabilization of Greater Victoria housing demand. After a slow 2008 and first quarter of 2009, lower home prices and low mortgage interest rates contributed to a significant rebound in resales in mid-2009. Expect both resales and average home prices to experience small increases in 2010.

Housing starts will bounce up in 2010, following two years of reduced levels of residential construction activity. The mid-2009 surge in resale activity combined with less supply (fewer homes under construction, and fewer existing and new homes for sale) will boost the number of new homes breaking ground in Greater Victoria next year.

Modest growth in existing home sales is projected for 2010, following a slight rebound in 2009. The growth will result from a stabilizing economy and continued sales by those looking to take advantage of low interest rates and ample, but shrinking supply. The recent up tick in resale prices (after bottoming out in the first quarter of 2009) combined with the anticipation of higher mortgage rates next year have led some potential home buyers to believe that Victoria-area homes will become more expensive. The favourable buying conditions will elevate sales through the remainder of 2009 and into 2010.

After six years of above average resale activity across the Capital region, a significant lull in existing home sales was observed in 2008 and through the first quarter of 2009. Since then, resale conditions have rebounded strongly due to relatively low mortgage rates and a downward adjustment in resale prices observed between the first quarter of 2008 and 2009.

The improved affordability that has been observed across Greater Victoria is evidenced by the reduced average mortgage payment that is required to purchase a home. In inflation- adjusted terms, the monthly payment associated with purchasing a single- detached home in Victoria declined 17 per cent between the peak of unaffordability (Q2 2008) and the August 2009 level.2

Affordability became a major issue for potential homebuyers during the extended upswing in resale prices that took place between 2001 and 2008. Over this period, the average resale home price in Greater Victoria increased at an average rate of 12 per cent per year. The recent improvements in affordability have been a breath of fresh air for those who previously could not afford home ownership, or were waiting for a more opportune time to enter the home ownership market.

A return to more balanced resale market conditions will occur in 2010, as both resale demand and supply stabilize. The strong demand recorded this summer has reduced the number of active MLS® listings considerably since reaching a peak last fall. As resale market demand stabilizes in 2010, so too will the supply of existing homes in Greater Victoria.

The fluctuations in existing home sales observed over the past two years have impacted average resale prices across the Capital region. After an extended period of steady and significant price gains, the average resale price declined 12 per cent from peak to trough in response to weak resale demand. Since bottoming out, the average Greater Victoria resale price has been edging up and currently sits three per cent below the peak level. With resale market conditions stabilizing, this will translate into minor price appreciation next year.