The average rental apartment vacancy rate in Canada’s 35 major centres increased to 2.8 per cent in October 2009 from 2.2 per cent in October 2008. The centres with the highest vacancy rates in 2009 were Windsor (13.0 per cent), Abbotsford (6.1 per cent), Peterborough (6.0 per cent), Calgary (5.3 per cent), and London (5.0 per cent). On the other hand, the major urban centres with the lowest vacancy rates were Regina (0.6 per cent), Québec (0.6 per cent), St. John’s (0.9 per cent), Winnipeg (1.1 per cent), Kingston (1.3 per cent), and Victoria (1.4 per cent).

Demand for rental housing in Canada decreased due to slower growth in youth employment and improved affordability of homeownership options. Rental construction and competition from the condominium market also added upward pressure on vacancy rates.

The highest average monthly rents for two-bedroom apartments in new and existing structures were in Vancouver ($1,169), Calgary ($1,099), Toronto ($1,096), and Ottawa ($1,028). The lowest average monthly rents for two-bedroom apartments in new and existing structures were in Saguenay ($518), Trois-Rivières ($520), and Sherbrooke ($553).

Year-over-year comparison of rents in new and existing structures can be slightly misleading because rents in newly-built structures tend to be higher than in existing buildings. However, by excluding new structures, we can get a better indication of actual rent increases paid by most tenants. The average rent for two-bedroom apartments in existing structures increased in all major centres. The largest rent increases in existing structures were recorded in Regina (10.2 per cent), Saskatoon (8.3 per cent),Victoria (5.0 per cent), and St. John’s (4.9 per cent). Overall, the average rent for two-bedroom apartments in existing structures across Canada’s 35 major centres increased by 2.3 per cent between October 2008 and October 2009.

CMHC’s October 2009 Rental Market Survey also covers condominium apartments offered for rent in Calgary, Edmonton, Montréal, Ottawa, Québec, Regina, Saskatoon, Toronto,Vancouver, and Victoria. In 2009, vacancy rates for rental condominium apartments were below two per cent in seven of the 10 centres surveyed. Rental condominium vacancy rates were the lowest in Toronto, Saskatoon, and Ottawa. However, Regina and Edmonton registered the highest vacancy rates for condominium apartments at 3.0 per cent and 3.1 per cent in 2009, respectively.

The survey showed that vacancy rates for rental condominium apartments in 2009 were lower than vacancy rates in the conventional rental market in Ottawa, Saskatoon,Vancouver, Toronto, Edmonton, and Calgary. The highest average monthly rents for two- bedroom condominium apartments were in Toronto ($1,487),Vancouver ($1,448), Calgary ($1,310), and Victoria ($1,223). All surveyed centres posted average monthly rents for two- bedroom condominium apartments that were higher than average monthly rents for two-bedroom private apartments in the conventional rental market in 2009.

Renters had an easier time finding rental accommodation in Vancouver this fall, compared to last year. Higher rental apartment vacancy rates have meant that renters have more choice. Although higher than last year, Vancouver’s vacancy rate is still below the national average and among the lowest in the country.

A slowdown in employment sent Vancouver’s rental apartment vacancy rate higher in 2009. The vacancy rate increased to 2.1 per cent, after sitting below one per cent for three consecutive years. Unemployment in the Vancouver Census Metropolitan Area (CMA) for the first ten months of 2009 increased to seven per cent from 4.3 per cent for the same period last year. Although employment has been gradually improving since the spring of this year, it has only been in the last couple months that full-time employment has grown.

A shift to homeownership also contributed to higher rental vacancy rates in 2009. A combination of low mortgage rates and home prices off their peak value has meant that monthly mortgage payments are lower. As of September 2009, the average monthly mortgage payment for an apartment condominium was approximately ten per cent less than it was one year ago3. Although the average mortgage payment is still higher than the average monthly rental payment, some renters have chosen to take this opportunity to enter homeownership.
Virtually all communities in the Metro Vancouver area saw an increase in vacancies in 2009. The only exception to this was the University Endowment Lands (UEL). The vacancy rate in the UEL, along with several areas of Vancouver City and North Vancouver, remained tight, below one per cent in October 2009.Vancouver City, with its educational infrastructure and job opportunities in the business centre, and the lifestyle communities of West Vancouver and White Rock recorded vacancy rates just over one per cent.Vacancies increased in all other municipalities, with suburban communities north of the Fraser River near three per cent, and communities south of the Fraser, in the 4-6 per cent range.

The rental availability rate4 for private rental apartments moved higher in 2009. The availability rate increased to 2.8 per cent in October 2009, from 1.1 per cent a year earlier. The vacancy rate for investor-owned rental condominiums increased in 2009, but to a lesser extent than that for purpose-built rental units. The rental condominium vacancy rate moved up to 1.7 per cent from 0.6 per cent last fall. The stock of rental condominiums is generally newer and features more amenities than their purpose-built rental counterparts. These benefits shore up demand for rental condominiums.

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.

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.

A gradual recovery of the economy and improvement in labour market conditions will underlie a 14 per cent pick-up in housing starts forecast for the St. Catharines-Niagara CMA (hereinafter Niagara) in 2010. Housing starts will increase to 950 units from estimated 830 units in 2009 as empty-nester demand, low inventories
and low mortgage rates boost new construction in 2010.

The household formation rate, a key determinant of housing demand, has slowed given the more challenging economic climate. Moving forward, it will continue to be slow because of demographic factors, most notably the aging population. The slowing household formation rate will limit the potential for starts in the region in the medium term.

In 2010, builders will break ground on as many single-detached homes as in 2009. Growth next year is expected to be led by starts of townhouses. This will be due to demand from downsizing empty-nesters who will continue to be looking for bungalow townhouse condominiums. A typical profile of townhouses that are becoming increasingly popular with senior households is a one and a half storey two-bedroom home with about 1,500 sq. ft. These homes often have an open concept design, with a master bedroom, and a large kitchen and living room area on the main floor. However, some empty-nesters are finding it difficult to sell their current homes. The cohort of current move-up households (the baby-bust generation born between the mid 1960s to the late 1970s), which includes the prospective buyers of these homes, is relatively small. Also, their housing requirements are different from the needs of the current empty-nesters when they were move-up buyers 20 to 30 years ago. Consequently, some empty-nesters will be unable to sell at a price that allows them to buy the housing they prefer without additional financing and may opt to stay in their current home. Some choosing this option will also renovate. Retirees moving into the region, traditionally from the GTA, will buy many of the bungalow townhouse condos being built. Proceeds from the sale of their home will enable them to afford a new home in Niagara.

Despite lower new home demand in the late 2008 and early 2009, there was almost no build-up in inventories of unsold completed homes. Builders matched production to the lower demand, which was very different than the experience in the 1991 downturn. Entering 2010 with low inventory will mean that builders will respond to any increase in demand for new homes with increased production. As economy recovers, the currently well-supplied resale market will no longer offer a lot of choice or be sufficient to satiate housing demand. The new home market will feel a positive spill-over effect from the resale market. Also, relatively low mortgage rates expected to move up only slightly in 2010 which will create an environment that is supportive for rising housing demand next year.

Increasing costs of land and development charges will bump up the price of new homes especially in the northern municipalities of Niagara peninsula. The New Home Price Index (NHPI) for Niagara, which measures the prices at which builders sell new homes of equivalent quality, is projected to reverse and trend up modestly, after falling through most of 2009.

Moishe Alexander’s Review:

New Home Market – High Rise Sales Will Dominate New Home Market

Toronto, Ontario - Credit Ian Muttoo, Flickr

New home sales in the Greater Toronto Area (GTA) will continue to moderate in 2009. Total new home sales will reach 22,500 in 2009 – down by 24 per cent compared to forecast sales in 2008. High rise sales have accounted for more than 50 per cent of the total share of sales since the end of 2007. This trend will continue and the share of high-rise sales will increase in 2009. New home sales will trend lower as choice increases in the resale market. Softer local economic conditions and elevated home prices will push the demand for home ownership lower.

Consequently, existing home sales will drop off as a share of listings. This means that an increasing share of homebuyers will meet their housing needs through the purchase of an existing home. Reduced preconstruction sales centre traffic will be the result. The low-rise housing sector will experience moderating sales much more so than the high-rise sector. The average price of a new condominium apartment is much lower than the average prices for most low-rise home types. This will be one issue prompting an increasing share of new homebuyers to purchase a condominium apartment. Changing demographics in the GTA also explain the heightened interest in the high-rise market. The average household size is shrinking with an increase in lone-parent and childless family households. These categories of homebuyers tend to live in smaller housing types like condominium apartments. The luxury high-rise market is also a growing niche that is catering to an increasing number of ageing baby boomers and empty nesters. Many of these more aged households will be wealthy from home equity growth and other sources. Many baby boomers will be looking for a large and often luxurious home without the outdoor maintenance that is often required in a low-rise setting. Strong immigration into the GTA has also played a role in increased demand for condominium apartments. This housing type has been an entry point into homeownership for many newcomers because of the lower average price point, which favours first-time buyers. Immigration will continue to be the dominant source of population growth in the GTA moving forward.

Starts to Edge Down

Lower new home sales over the past year and forecast for 2009 will translate into fewer new home starts. Following a healthy increase for 2008, total housing starts will edge lower by 21 per cent to 34,250 in 2009. Similar to the new home sales outlook, low-rise home starts will decline at a greater rate than apartment starts. In this way, the share of apartment starts will continue to trend higher, with 59 per cent of total new home construction being accounted for by high-rise units. The great majority of these apartments (approximately 95 per cent) will be condominiums for home ownership. During the last two years, preconstruction sales of condominium apartments have hit record levels resulting in a back-log of units yet to start construction. While some of this back-log has unwound this year, units sold at the pre-construction stage up to two years ago will continue to start in 2009. Add to this the fact that 2008 pre-construction sales have been high historically, I makes sense that the share of apartment construction will continue to increase. In order to see condominium apartment developments move from the pre-construction to construction stage, developers must be able to source labour, materials and equipment to allow construction to commence and continue without interruption. In many cases, because of the high number of apartments currently under construction, some developments must reach the completion stage before work can begin on new projects. Condominium apartment completions have begun to trend higher and will grow at a stronger rate in 2009. For this reason, condominium apartment construction will remain at high levels through the end of next year.

The Condominium Investment Question

When discussing record and near record levels of condominium apartment sales, starts and completions, inevitably the topic of conversation turns to investors. The concern is investors with a short time horizon. These individuals purchase at the pre-construction stage of development with the intention of selling shortly after the completion and registration of the project under a condominium corporation. If many investors were to flood the market with listings all at once, average condominium apartment prices could be forced downward as buyers benefited from increased negotiating power in an over-supplied market. While it is not known for certain what percentage of units currently under construction are held by investors, discussions with industry stakeholders suggest an investor held concentration of approximately one-third. As completions have trended upwards after reaching a low point in 2007, an increase in listings has also taken place. This will continue through 2009. The question is whether or not an increased number of investor-held units reaching the marketplace will cause prices to fall, buyers’ equity to erode and ultimately pre-construction purchasers to “walk away” from their deposits. There certainly will be more choice through the end of 2009, but resale market conditions are sufficiently tight, especially in the central GTA, that a buyer’s market situation is not expected to develop. Instead, price growth will move closer to the rate of inflation for the GTA as a whole and slightly above inflation in central Toronto. Beyond 2010, the number of investor-held units reaching the market place will likely flatten out and then decline as the number of units sold and under construction trend lower. Moreover, as price growth moves closer to inflation, there will be fewer investors operating at the pre-construction stage of development as the potential return on investment becomes less attractive in the short term.

Existing Home Market – Existing Home Sales Off the Peak

Over the next two years, the number of home sales under the MLS® system in the GTA will trend lower off the 2007 record high. Sales will moderate due to softer economic conditions domestically and elevated home prices. In 2008, home sales will be down to 82,000 units, moderating by 14 percent from a year ago. In 2009, sales will edge lower by 8.5 per cent to 75,000. Slower growth in jobs and earnings will especially impact would-be first time buyers, who are generally more sensitive to changes in economic conditions and who face a wider gap between ownership and rental costs. In addition to the labour market situation, a long phase of home price growth well above the general rate of inflation and household incomes has ultimately moderated demand for homeownership. Slower price growth over the next year will help this situation somewhat, but on net will still result in an increased number of buyers putting their home buying decision on hold. While home sales will be off record levels, continued steady net-migration and low borrowing rates will keep home buying activity in the GTA in line with the average over the past ten years.

More Supply, Moderate Price Growth

New listings will continue to grow to reach a record-high level in 2008. The trend will flatten out in 2009. At a maturing stage of the housing cycle, when the rate of price increase usually slows, an increasing number of homeowners list their homes for sale to realize the equity gains accumulated during the expansion phase of the price cycle. The trend in listings growth will eventually slow and then change direction, however, as fewer home owners are able to sell their homes for the anticipated values for their properties. This will begin to happen toward the end of 2009. The relationship between sales and new listings speaks to the level of choice in the existing home market. With sales lower this year and the level of new listings continuing to grow, buyers have had more homes to choose from. This increased choice has meant that offers below the asking price have been more common. As a result, annual price growth in the GTA has moderated. In 2009, the level of new listings is expected to level off and start declining toward the end of the year. While the sales-to-new listings ratio will continue to decline, it will do so at a diminishing rate. The resale market will remain balanced, with prices growing in line with inflation. The average home price in 2008 will be up 2.6 per cent to $387,000. By the end of 2009, the average price of home will reach $394,000 – up 1.8 per cent. While positive, these forecast growth rates are much more moderate than what was experienced on average over the past ten years, including the seven per cent growth rate experienced in 2007. Not all housing types will experience the same moderation in price growth over the next year. Condominium apartments in the central Toronto area are a good example of this. The central Toronto area remains a tighter market than the region as a whole. While condo buyers in the central area have experienced more choice this year, seller’s market conditions still persist. As choice continues to increase in 2009, price growth will moderate, but will still remain above the average for the GTA as a whole.

The First Time Buyers Niche Gets Smaller

Over the long term, first-time buyers will remain the most important factor driving sustained demand for home ownership in the GTA. As immigration into Canada and the GTA increases over the next two decades, many of these households will be pointed in very short order towards the purchase of a new home. In the short-term, however, the level of first-time buying activity is subject to the economic cycle. The number of households purchasing their first home will be trending lower in 2009. Softer labour market conditions along with elevated home prices will affect the ability of some first-time buyers to make a home purchase. Based on CMHC’s Renovation and Home Purchase Survey, the percent- age of intended home purchases accounted for by first-time buyers declined to 40 per cent for 2008 compared to 47 per cent in 2007. This share will decline further in 2009.

Economic Trends – Toronto Will Continue to Create Jobs

Employers in the GTA have persevered in 2008. The rate of job growth will be 1.8 per cent in 2008 – above the average for Ontario. In 2009, job growth will remain positive, but the rate of growth will moderate to one per cent. Job growth will come from the service sector. As labour market conditions in the GTA remain tight through the end of 2009, wages and salaries will continue to grow slightly above the rate of inflation. With the unemployment rate hovering around seven per cent, many employers in the service sector will be offering wages above the rate of inflation.

Mortgage Rates

Mortgage rates are expected to be relatively stable throughout the last quarter of this year, remaining within 25-50 basis points of their current levels. Posted mortgage rates will decrease slightly in the first half of 2009 as the cost of credit to financial institutions eases. Rising bond yields, however, will nudge mortgage rates marginally higher in the latter half 2009. For the last quarter of 2008 and in 2009, the one year posted mortgage rate will be in the 6.00-6.75 per cent range, while three and five year posted mortgage rates are forecast to be in the 6.50- 7.25 per cent range.

You can find the entire report in PDF format through the following link:
http://www.cmhc-schl.gc.ca/odpub/esub/64319/64319_2008_B02.pdf