February 4, 2009 — Moishe Alexander’s review on how the current world economy and Canadian economic turndown is affecting St. Catharines Niagara CMA Housing Market
Moishe Alexander’s Review
New Home Market – New Home Construction Under Pressure
St Catherines, Ontario - Credit B. Gilliard, Flickr
Moishe Alexander says new home construction will ease back by 12 per cent to around 1,000 homes in 2009 from 1,140 home starts in 2008. The contraction will be felt across all housing types, with the number of single detached home starts easing off by about 13 per cent. Given their popularity, townhouse starts will moderate by only 8.3 per cent. The lower number of starts is attributable to uncertainty about economic prospects, limited land supply, demographic changes and more selection in the resale home market. Construction of single-detached homes will continue to moderate because of land supply limitations.
This will translate into higher prices, especially in the relatively built-up northern part of St. Catharines- Niagara. Given the land supply limitations and Greenbelt legislation constraints in the north, more active residential construction is expected to occur in the southern areas of the region. Single-detached homes will also continue to lose their attraction due to changes in the region’s demographic composition. The declining average number of persons per household suggests that smaller households will require smaller and less expensive homes. Moreover, an aging population will need to live closer to amenities, in homes which are easier to maintain than single detached houses. In some cases, wealthy seniors will move from small single-detached houses to larger condominium apartments. This is still a movement to higher-density housing. To accommodate a growing population of older people, there will be more construction of townhouses and apartments, more retirement home building and many redevelopment projects. Some of these projects are expected to take place in former industrial sites abandoned by the manufacturing industry. Prices for new homes will continue to grow although at a slower pace than in 2008. Rising residential construction costs associated with land supply constraints and higher development charges will account for the major part of the increase. Increasing concrete and steel costs will also contribute to higher costs for high-rise construction. Consequently, in 2009, there will be a shift to more modestly priced housing which will lower the average price. The softening and well-supplied resale market will offer a broader selection of homes for buyers thereby encouraging more interest in resale homes which are more affordable relative to the new home market. The price differential between Toronto and St. Catharines- Niagara homes, on the other hand, will continue to attract many well off households from Toronto area, especially among people of preretirement age and those whose commutes are less-than-daily because of workplace flexibility. This will provide some support to the slowing market.
Resale Market – Back to Balance
Moishe Alexander says sales are forecasted to moderate again in 2009 by 4.9 per cent to 5,800 transactions. A moderation in employment, slow growth in earnings and less migration are the main factors behind the projected tapering off. Prices increasing at a more subdued pace will mitigate the decline in demand. The region is losing population to all other areas in Canada except for Toronto and Hamilton. Since people moving to St. Catharines-Niagara tend to be older than those leaving, there will not be as many first-time buyers coming to the region. At the same time, the housing demand of incoming migrants from Toronto and Hamilton will be probably more concentrated in the adult lifestyle-housing segment of new homes. The number of listings in 2009 is expected to trend slightly higher to the 12,600-level which is a moderate gain of 0.8 per cent after the 6.7 percent increase in 2008. The sales-to-new listings ratio will move down to balanced market territory at around 49 per cent in 2008. The ratio will ease down slightly in 2009. The greater selection in the resale market will underlie the deceleration in the growth of resale home prices to 1.9 per cent, a rate similar to inflation. Buyers will have definitely more options to find a home of their choice. Resale home prices have been growing slower than new home prices in 2008. This is forecast to change in 2009 as builders will start sensing demand for new homes is declining. As a result, the resale price growth will again outpace new home price growth, but both will be slower than in the past.
Economic Factors- Local Economy to Contain the Slowdown
Moishe Alexander says that in 2008, the labour market has been strong creating slightly over two percent more new jobs. In 2009, the economy is not expected to perform as strongly. Employment is forecast to moderate by 0.7 per cent and the unemployment rate will edge a little higher. The moderating employment picture is also consistent with demographic trends. The region has one of the oldest and slowest growing populations in Canada. More and more baby-boomers will be retiring in the coming years and since the migration into the region is not expected to be strong, the labour force will be shrinking. Several strong service-producing sectors, particularly health care, public administration and, to a lesser degree, educational and financial services, will have better performance somewhat offsetting job losses in other sectors. Even tourism sector which is perceived to be very vulnerable to the fluctuations in the value of the Canadian dollar has been doing relatively well. Although the number of trips by US citizens is down significantly, a steady inflow of international tourists and more domestic travellers have sustained the tourist industry. Average weekly earnings will grow in 2009 but at a slower rate than in 2008. Some service sectors are adding relatively high-wage jobs. The regional economy is becoming better positioned to weather economic downturns thanks to diversification of the production base. Also, the region is gradually shifting more to the creation of many smaller but more viable businesses which replace large plants.
Mortgage Rates
Moishe Alexander says that 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 percent range.
You can find the entire report in PDF format through the following link:
http://www.cmhc-schl.gc.ca/odpub/esub/64315/64315_2008_B02.pdf
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