Posted by Moioshe Alexander
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.