According to the results of the latest Rental Market Survey conducted by Canada Mortgage and Housing Corporation (CMHC), the rental stayed tight in the Saguenay CMA, as the rental housing vacancy rate reached 1.5 per cent in October 2009, compared to 1.6 per cent in October 2008. While demand for rental housing stayed strong, this year marked a break in a downward trend that had been prevailing since 2005, since this indicator remained relatively stable. The economic uncertainty surely had an impact on the formation of renter households and migration movements. However, given the small increase in supply, the net effect on the vacancy rate was almost nil.

Saguenay was not an exception in Quebec, with the vacancy rates remaining relatively stable in several other CMAs. In fact, only Sherbrooke and Trois-Rivières saw their markets ease, as their vacancy rates of 3.9 per cent and 2.7 per cent, respectively, were the highest in the province. In order, Montréal (with a vacancy rate of 2.5 per cent) and Gatineau (2.2 per cent) followed ahead Saguenay (1.5 per cent), while the Québec CMA (0.6 per cent) brought up the rear with the lowest rate in the province and one of lowest in the country. Across Canada, the vacancy rates were rather stable in more than one third of the CMAs, while they rose in almost all the other areas.

Economic and demographic conditions The employment level in the Saguenay CMA has remained steady since 2003, despite a small decrease in 2008 (-1.6 per cent). For the last quarter of 2008 and the first three of 2009, the average employment level reached 69,300 workers, compared to 68,800 for the same period a year earlier (+0.7 per cent). In addition, the dynamic labour market in the area has maintained the employment rate (the proportion of the population with jobs) around a record level of 55 per cent1. The job market is still holding up, which is maintaining demand on the rental market.

Not only did the dynamic labour market support the formation of renter households thanks to the income generated, but it also enhanced the appeal of the area. Net migration has improved in the Saguenay CMA, as the migration deficits have been getting smaller every year, decreasing from 1,341 people 2004/2005 to 852 people in 2007/2008, according to Statistics Canada estimates. Also, given that mobility is greater among young people (aged from 20 to 29 years) and that most of them are renters, the decreasing migration deficits have without a doubt been contributing to supporting demand for rental housing.

That being said, the uncertain economic conditions that prevailed at the end of 2008 and the beginning of 2009 likely had an impact on migration movements. Traditionally, the Québec CMA has been the main destination of emigrants from Saguenay2. The good performance of the Québec area job market during a difficult period evidently attracted more households seeking new employment opportunities. In these conditions, the growth in housing demand in the Saguenay area will have been less vigorous than in previous years.

The aging of the population is another factor that stimulates rental housing demand. Between 15 and 55 years, the older primary household maintainers get, the less likely they are to live in rental housing. From the age of 55 years, households increasingly choose to rent a dwelling. When they get older, the seniors’ housing market remains an option for some, but the traditional rental market may be an alternative for households who do not have the financial means to move to a retirement home. In addition, over the coming years, household formation will be concentrated among people aged 55 years or older.

New rental housing supply The additional supply of traditional rental housing was rather limited between the October 2008 and October 2009 surveys. In fact, only 50 new traditional rental housing units were completed during this time (this figure, however, excludes units that have been converted into rental dwellings). As well, 50 new duplex units were built between July 2008 and June 2009, potentially adding 25 more dwellings to the rental market (as one out of two units is usually occupied by the owner of these buildings). The stable vacancy rate was therefore also due to the limited supply of new rental units, in addition to the slower growth in demand.

Contrary to last year, when rental market conditions tightened in all sectors of the Saguenay CMA, this year, the results were mixed. The market tightened in Jonquière, on account of two factors: first, the average rent level was lower in this sector and, second, the estimated change in the average rent was less significant there than elsewhere. The Chicoutimi-Sud and La Baie rental markets, for their part, remained stable, while Chicoutimi-Nord was the only sector where conditions eased. More specifically, the Jonquière market, with a vacancy rate that fell from 2.4 per cent in October 2008 to 1.5 per cent in October 2009, has now become almost as tight as the Chicoutimi-Sud market. Still, this last market remained the tightest in the area, with a vacancy rate that reached 1.3 per cent in October 2009, versus 1.0 per cent in October 2008. In La Baie, the proportion of vacancy units remained relatively stable, reaching 2.2 per cent in the fall of 2009, compared to 2.1 per cent a year earlier. Lastly, the vacancy rate in the Chicoutimi- Nord sector rose to 2.1 per cent in October 2009 from 0.7 per cent in October 2008.

The estimated change in the average rent was 3.4 per cent between October 2008 and October 2009. The tighter rental market conditions are certainly not unrelated to this situation. However, the size of the changes varied with the sectors. The sector with the tightest market conditions and the strongest demand in the area, Chicoutimi-Sud, also posted the greatest estimated change in the average rent (+4.6 per cent). The Jonquière sector, for its part, showed the smallest change in the average rent (+1.7 per cent) and a tighter market. This less significant change possibly attracted more households to this sector. As for the other two sectors of the Saguenay CMA, the changes in the average rents were 3.2 per cent in La Baie and 4.4 per cent in Chicoutimi-Nord.

In 2009, the Saguenay CMA had the most affordable rental market among all the Canadian metropolitan areas targeted by the rental affordability indicator. With this indicator at 152, Saguenay came in just ahead of Sherbrooke (151). The more rapid growth in the median income than in the median rent helped make housing more affordable in the area.

The rental affordability indicator is a gauge of how affordable a rental market is for those households who rent within that market. The rental affordability indicator examines a three-year moving average of median income of renter households and compares it to the median rent for a two-bedroom apartment in the centre in which they live. More specifically, the level of income required for a household to rent a median priced two-bedroom apartment, using 30 per cent of its income, is calculated. The three-year moving average of median income of households in a centre is then divided by this required income. The resulting number is then multiplied by 100 to form the indicator. An indicator value of 100 indicates that 30 per cent of the median income of renter households is necessary to rent a two-bedroom apartment going at the median rental rate. A value above 100 indicates that less than 30 per cent of the median income is required to rent a two- bedroom apartment, conversely, a value below 100 indicates that more than 30 per cent of the median income is required to rent the same unit. In general, as the indicator increases, the market becomes more affordable; as the indicator declines, the market becomes less affordable.

The slackness in the resale market coupled with the slowing economy will directly impact the new home market. Single-detached starts will fall to 190 units in 2009 and 180 in 2010, as the market comes more into line with long-term demographic requirements. CMHC expects 210 row, condominium and apartment starts in 2009 and another 160 in 2010.

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.

Developers have plans for condominium development in 2010. 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 that what they obtain from the sale of a homeownership unit.

As is well known, the vacancy rate has fallen from a peak of 11.1 per cent in 1999. A tight market partially brought on by a lack of new rental construction and demand pressure has finally resulted in some development of rental housing in Greater Sudbury. Vacancy rates rose slightly in April and will also increase this October before falling again to 1.3 per cent in 2010 as the economy begins improving. Strong enrolment figures at the three Sudbury-based post-secondary institutions will contribute to the tight market conditions. Rents should continue to escalate in 2009 and 2010 given continued strong demand for rental accommodation.

After plateauing in 2006-2007, Sudbury sales fell 13 per cent in 2008 and have fallen a further 26 per cent to the end of September. Sales will certainly continue this downward trend in 2009. Given the buyer’s market conditions, CMHC estimates a 27 per cent drop in existing home transactions when the year is complete. Sales will drop a further six per cent in 2010 as the market moves towards a balanced position.

The sale to new listings ratio, an indicator of the existing home market behaviour, is improving. After growing in the third quarter, Sudbury’s market will keep an upward trend, increasing its temperature. CMHC expects this ratio to end the year approaching 50 per cent, indicating that prices will adjust all the way into next year.

According to local sources, demand is greatest in the price ranges under 200,000 while the upper end of the market (>$400.000) has not been greatly affected. Prices have been falling since mid-year 2008 after rising to unsustainably high levels over the prior four years. The price decrease will continue into 2010 but will be tempered by falling listings. Watch for average prices to fall 5.5 per cent in 2009 and level off in 2010.

Given the adjustment in home prices, there has been improvement in required income to purchase a home. Unfortunately, with the slowing economy, the adjustment to incomes has been stronger. As a result the net impact on affordability will decrease somewhat in 2010 after improving in 2009. Nonetheless, there are buyers in the market searching for lower priced homes.

Greater Sudbury has experienced a strike at Vale Inco, one of the biggest mining companies in the community. Consequently employment will decline 1.2 per cent in 2009 and recover only slightly, 0.5 per cent in 2010. The combination of job loss and labour force growth have caused the unemployment rate to head north, and will approach on average nine per cent this year and next.

After an increase of nearly nine per cent in 2008, average weekly earnings will drop this year declining three per cent and fall a more modest 0.5 per cent in 2010. Removing a relatively high proportion of mining and mining- related incomes from the mix would have had a downward impact on average weekly earnings over the course of this year.

In the short term local economic uncertainty will impact housing demand. However, the current commodity price rebound will form a solid long term foundation for growth in the broader Sudbury economy. Despite the current weakness in the Sudbury economy, some economic development plans are still moving ahead.

Migration has been positive of late, while natural increase is trending down. In-migration will trend downward in 2009 and 2010 prior to recovery in 2011. Mining workers affected by work stoppages may contemplate relocating if the national economy begins to improve, generating opportunities elsewhere.

The Bank of Canada cut the Target for the Overnight Rate in the early months of 2009. The rate was 1.50 per cent at the start of 2009 and has since fallen to 0.25 per cent. The Bank has committed to keeping this rate at 0.25 per cent through the middle of 2010 unless inflationary pressures warrant an increase.

Mortgage rates have fallen over the course of 2009, but are now expected to remain relatively stable for the rest of the year. Posted mortgage rates will gradually increase through 2010, but will do so at a slow pace. For 2010, the one-year posted mortgage rate will be in the 3.50-4.25 per cent range, while three and five-year posted mortgage rates are forecast to be in the 4.50-6.00 per cent range.

Following a 56 per cent decline in 2008, total housing starts across the Edmonton Census Metropolitan Area (CMA) are on pace to decrease by another 24 per cent this year to 5,000 units. This will represent the lowest level of activity for the region’s home builders since 1997. While single- detached construction has staged a modest recovery since the summer, a continued downturn in the multi- family sector will hold down this year’s numbers. In 2010, a sustained improvement in single starts combined with a moderate rebound in multiples will boost total starts by 29 per cent to 6,450 units. While representing a sizable gain over this year’s volumes, total starts next year remain a fraction of the 10,600+ units started on average during the 10 year period 1999-to-2008.

Single-detached starts increased by 14 per cent during the first nine months of 2009 but the improvements have come on gradually as the year has progressed. Activity levels were down by 39 per cent year-over-year at the end of the first quarter but have generally exceeded last year’s production since then. Price reductions, various incentives, and low mortgage rates have helped to bolster demand in 2009. This trend should continue for the balance of 2009, with annual production nearing the 3,200 unit mark. This will represent an increase of 22.5 per cent over 2008 but will still be well below activity levels reported over the past decade. Look for these gains to continue in 2010, with single starts of around 4,200 units. The tepid outlook for employment growth will temper the rate of increase going into 2010. Inventory levels, including show homes, peaked in August 2008 and have been trending downward throughout much of the past year. As shown in Figure 2, the show home component of inventory has started to move upward as builders ramp-up marketing efforts. The inventory of complete and unabsorbed spec homes, meanwhile, has trended to its lowest levels since September 2006.

Statistics Canada’s New House Price Index (NHPI) is forecasted by CMHC to decrease by 10.5 per cent this year before staging a two per cent improvement in 2010. These price changes have begun to show up in CMHC’s market absorption surveys but the overall average absorbed price has held up surprising well in 2009. To the end of August, the average absorbed price increased this year nine per cent to $545,327. While units priced under $400,000 and over $600,000 have gained market share this year, mid-range product selling between $400-600,000 lost ground compared with last year.

CMHC forecasts an average absorbed single-detached price this year of close to $535,000, for a 4.5 per cent gain over 2008. The expected median value will be much lower as the impact of high-priced homes is less using this measure. In 2010, the absorbed average price will soften due to the lagged effect of when homes are priced (often before construction begins) and when they are captured in our survey (which is at completion). The pressure for higher negotiated selling prices will come from builders who had trimmed their margins over the past year in order to clear their unsold inventory. With better economic times ahead, land and labour costs as well as material prices such as lumber and concrete are expected to increase.

Economic growth in New Brunswick was limited in 2009 as exporters in the province continued to face a decline in global demand for commodities. Fewer exports have also had a negative impact on the manufacturing and transportation sectors in the province. No significant increase in economic growth is expected until a global recovery begins to take hold in 2010.

Despite economic uncertainty, the long term outlook for New Brunswick contains positive elements which will serve to support housing demand. For example, the last provincial budget for 2009-2010 focused on job creation, with $1.2 billion set aside for infrastructure programs and support to New Brunswick businesses. Notwithstanding, the return of sustained economic expansion will rely heavily on capital investment.

Employment in New Brunswick’s three large urban centres has been stable in 2009. As a result, positive net-migration continued in both Moncton and Fredericton, as each centre benefited from solid service, retail and construction sectors. Conversely, in-migration in Saint John, which has been muted in recent years, is not likely to change during the remainder of this year and in 2010. Reduced housing demand in all three centres has led to a lower level of activity in both the new home and resale markets. Employment levels are expected to remain flat in 2010; however, this should not significantly affect the housing market.

The Bank of Canada cut the Target for the Overnight Rate in the early months of 2009. The rate was 1.50 per cent at the start of 2009 and has since fallen to 0.25 per cent. The Bank has committed to keeping this rate at 0.25 per cent through the middle of 2010 unless inflationary pressures warrant an increase.

Mortgage rates have fallen over the course of 2009, but are now expected to remain relatively stable for the rest of the year. Posted mortgage rates will gradually increase through 2010, but will do so at a slow pace. For 2010, the one-year posted mortgage rate will be in the 3.50-4.25 per cent range, while three and five-year posted mortgage rates are forecast to be in the 4.50-6.00 per cent range.

New Home Construction Not as Robust as Before New home construction in Barrie will come in at a lower tally than last year. Single-detached homes will continue to make up the majority of a smaller new construction pie. Next year, new construction will increase from this year, as the economy begins to improve. From 2010 to 2013 new housing construction will grow at a relatively subdued level. With less demand for new housing, the average price of a newly constructed single- detached home will decrease.

The number of new housing starts is expected to come in significantly lower this year than last year’s total tally. Total starts in Barrie Census Metropolitan Area (from here on referred to as CMA) will come in at 340, less than a quarter of the homes built in 2008. Next year total starts will begin to improve and come in at close to 390 units. Currently, the number of homes under construction and inventories of new unsold homes are both declining. Consequently, improving demand next year will translate into starts fairly quickly.

Even though apartments, and to a lesser degree row homes, are expected to be significant components of all new construction in the CMA, single-detached homes will continue to be the most preferred type of housing built in Barrie. Single- detached starts will make up close to 61 per cent of all new construction this year in the CMA while apartments will make up close to 27 per cent and row homes 12 per cent. Looking forward, the recovery is expected to be slow. With lower new housing demand, as a result of the economic downturn, and the slow recovery, the average price of a new single-detached home is expected to drop from last year and finish this year at $340,000 a drop of five per cent. In 2010, as recovery strengthens the average price of a new single-detached home will be negative but by a much lesser margin than this year. Resale Homes Market Resale Market Relatively Unscathed by Downturn homes market will fare better this year.) The SNLR (Sales-to-New- Listings-Ratio) will remain near the upper bound of balanced market territory. The average price of an existing home will grow modestly this year and at the rate of inflation next year. Housing affordability will deteriorate slightly as modest price growth and increasing mortgage rates raise monthly carrying costs. In spite of the slight deterioration in affordability, the Barrie CMA will remain an attractive housing market when compared to other urban centres.

Both sales and new listings of existing homes will lose some strength from last year.(In comparison to the new homes market though, the existing homes market will fare better this year.) The SNLR (Sales-to-New- Listings-Ratio) will remain near the upper bound of balanced market territory. The average price of an existing home will grow modestly this year and at the rate of inflation next year. Housing affordability will deteriorate slightly as modest price growth and increasing mortgage rates raise monthly carrying costs. In spite othe slight deterioration in affordability, the Barrie CMA will remain an attractive housing market when compared to other urban centres.

Similar to the new home market, the resale home market will also feel the effects of the economic downturn. This year total existing home sales will end the year close to 3,900, a drop from last year of five per cent. In 2010, existing home sales will decrease slightly once again but by a lesser amount than this year as the market will begin showing signs of recovery and stabilization.

TED-Spread On Wednesday, this widely quoted credit risk indicator fell to a 26-month low. The TED spread is now below its August 2007 levels. (August 2007 is generally viewed as the beginning of the subprime crisis.)

The TED spread is simply the difference between what banks and the U.S. Treasury pay to borrow money for three months. People use it to gauge fear and liquidity constraints in the North American credit market.

The TED spread reached an all-time high of 4.65% at the height of the credit crisis in October 2008. Its long-term average is about 1/2%.

http://www.canadianmortgagetrends.com/canadian_mortgage_trends/2009/07/ted-spread-continues-to-fall.html

brought by Moishe Alexander, CFC canadian funding corp CEO