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.

Moishe Alexander’s Review

Highlights

Barrie, Ontario - Credit Ken Lund, Flickr

Moishe Alexander says that the overall vacancy rate has increased slightly from 3.2 per cent last year to 3.5 per cent this year. A moderating economy and less full-time youth employment led to increased vacancies. The rental market is expected to continue easing. The vacancy rate will increase to 3.8 per cent next year and the average monthly rent for a two-bedroom apartment will inch higher to $968.

Overall Rental Market Softens

Moishe Alexander says that the overall vacancy rate for apartments has gone up slightly from last year, with the increase driven by higher vacancies among the two-bedroom units. A slowing economy coupled with less migration of newcomers into Barrie, and fewer households moving from renting to home ownership caused the area’s rental market to soften.

Rental Demand Slows – Youth Employment Gains Mainly Part-time

Moishe Alexander says that after a sustained period of growth, employment in Barrie is starting to decline, as the decrease in full-time employment has more than offset any gains in part-time employment.

For the 15-24 age groups, the decline in full-time employment was marginal and was more than offset by growth to part-time employment, bringing overall employment above last year’s level. However, part-time employment is not as stable or financially rewarding as full-time employment. Therefore, fewer youth are choosing to enter the rental market.

Demographics Less Supportive of Current Rental Demand

Moishe Alexander says that according to the 2006 Census, the Barrie Census Metropolitan Area (CMA) has a higher proportion of people under the age of 24 relative to Ontario, over 34 per cent and just under 32 per cent respectively. This is a sizeable group for future rental demand in Barrie. However the proportion of young people between the ages of 15 and 24 in Barrie is only slightly above the same proportion in Ontario (13.6 per cent to 13.4 percent), and the 20-24 age group is smaller (6.3 per cent compared to 6.6 per cent in Ontario). This is a key group for the rental market as it signifies the point in life associated with youth moving out of their parents’ homes and into their first rental unit. The relatively smaller size of this group is contributing to the slowdown in the number of new entrants into the rental market.

Migration Eases

Moishe Alexander says that migration of people into Barrie has been one of the factors for the prolonged economic and housing market growth in the region. However migration has slowed, and with fewer people coming into Barrie, demand for rental units has moderated. The number of people new to Barrie has dropped to about 5,500 this year and will stay at the same level next year. This is a sizeable decrease from the over 10,000 people who arrived in 2000, and is a factor contributing to higher vacancy rates.

Movement From Renting To Owning

Moishe Alexander says that the Barrie rent-to-mortgage carrying cost-ratio averaged about 69 percent this year and last. Although this is down from over 100 several years ago, it is still higher than the average for Ontario which is about 60 percent. Higher ratios reflect market conditions which give renters an incentive to become home owners. Barrie’s housing market, both rental and ownership, had been tight enough over the last few years that the relative closeness of monthly rental costs and monthly mortgage costs enticed many to exit the rental market and purchase a home. Given the economic uncertainty and high prices, fewer households continue to enter the home ownership market, both new and existing. This would reduce the vacancy rate but this trend has been more than offset by the employment and migration trends already noted.

Large Buildings Popular

Moishe Alexander says that the increase in the overall vacancy rate from 3.2 per cent to 3.5 percent reflected increases for most mid-size buildings. However, the vacancy rate for buildings with 100 units or more dropped sharply from 1.3 per cent to 0.3 per cent. The larger buildings tend to be more popular because they may offer more amenities and often are located closer to the city core. The largest buildings also charged the highest rents, underscoring their popularity.

Availability Up

Moishe Alexander says that the availability rate, a measure indicating what is on offer on the market (both currently vacant and soon-to be vacant), has gone up by close to two percentage points from last year. The majority of the growth in the overall availability rate came because of increases in the rates of both two bedroom and three bedroom units, with the most growth in the two-bedroom unit rate.

Rents Rising Faster Than Inflation

Moishe Alexander says that the percentage change of average rents from a fixed sample is a measure that estimates the rent movement due to changes in market conditions. The estimate is based on structures that were common to the survey sample for both 2007 and 2008 Fall Rental Market Surveys. Despite the increase in the vacancy rate, the average increase for apartment rents was 4.4 per cent. On a per type basis bachelor, one-bedroom and two-bedroom units had significant increases above the rate of inflation, which drove the overall rent up.

Secondary Rental Market Expands

Moishe Alexander says that the stock of secondary rental housing increased significantly from last year. The majority of this growth was due to a strong increase in the number of single-detached homes put on the market for rental purposes. Furthermore, while the share of secondary rental units decreased for all other dwelling types, the share of single-detached homes increased substantially. Overall, the average rent in the secondary market was up significantly. Single-detached, semi-detached, row houses, and duplexes accounted for the marked average rent increase, while the average rent for accessory suites was lower. Because their rents are the highest, the increase in the share of single-detached houses in the secondary rental market pulled up the average rent in this market. Given the region’s preference for low density housing, some people not ready to enter the home ownership market but looking for similar types of housing are moving to the secondary market. This choice is supported by the fact that rent levels are similar to those in the purpose-built market.

Rental Market Outlook

Moishe Alexander says that given the moderation of the economy, which will not begin to improve until late next year, the sluggishness in the region’s rental market will continue into next year. The vacancy rate will increase from 3.5 per cent to 3.8 per cent next year. A significant increase in supply will be the main factor pushing up the vacancy rate. The average rent for a two-bedroom apartment will continue to increase, albeit by less than the rate of inflation, given the slowing demand. The average two-bedroom apartment rent will be $968 per month, up slightly from the current $954.

You can find the entire report in PDF format through the following link:
http://www.cmhc-schl.gc.ca/odpub/esub/65772/65772_2008_A01.pdf