Renters are having an easier time finding accommodations in Victoria this year. A sluggish local economy and labour market, and a recent surge in homeownership has moved vacancy rates up. As the level of employment has edged lower, relatively fewer people have moved to the region. Historically low mortgage rates and lower home prices reduced monthly mortgage carrying costs, and encouraged some renters to exit the rental market in favour of homeownership. Near record levels of apartment condominium resales recorded across Greater Victoria during the second and third quarters of 2009 reflected this movement from rental to homeownership.

Vacancy rates for both apartments and town homes moved up in the Victoria CMA over the past year. The average apartment vacancy rate edged up to 1.4 per cent, following four years at 0.5 per cent. Similarly, the average vacancy rate for rental townhouses shifted up from 0.1 per cent last October, to 1.8 per cent in October 2009. The trend of increasing vacancies was widespread in the region. Higher vacancy rates were observed across all Greater Victoria municipalities. Both the one and two bedroom segments of the local apartment rental markets recorded increased vacancies. While apartment vacancy rates in Victoria increased in 2009, they remain low compared to other major British Columbia markets (2.1 per cent in the Vancouver CMA and 3.0 per cent in the Kelowna CMA) and the provincial average (2.8 per cent).1

Softer demand for rental housing in 2009 has put less upward pressure on rents. Average one and two bedroom apartment rents edged up 4.5 and five per cent in 2009, respectively.2 This growth was less robust than the 6.8 per cent average rent increase in 2008, when vacancy rates were at their lowest. A substantial range exists between the rents observed across Victoria CMA municipalities. For an average two- bedroom apartment, Oak Bay was home to the highest rents ($1,206), while the lowest rents were found in Esquimalt ($858). When compared to the provincial average, two-bedroom rents are on par, while average one- bedroom rents are eight per cent lower in Victoria.

Kelowna area housing starts and sales of existing homes will move higher in 2010. Expect demand for both new and existing homes to pick up as the BC and Canadian economies record stronger growth.

Housing starts, led by the detached home sector, will increase in next year. Strong price competition from a well-supplied existing home market and rising inventories of new, completed and unoccupied apartment condominium units will constrain multi-family construction during the first half of 2010.

This year’s upswing in existing home sales will carry over into 2010. Competitive pricing, a good selection of listings and favourable interest rates will help sustain growth in demand for existing homes next year. Expect existing home prices to edge back up as demand improves and the supply of listings is drawn down.
Starts of detached homes are forecast

Starts of detached homes are forecast to increase next year, surpassing multi-family construction for the first time since 2004. The inventory of new, completed and unoccupied detached homes has begun to edge back down after climbing to record levels earlier this year. Lower lot prices and construction costs have allowed builders to more effectively compete with existing homes. Lot prices have declined in response to moderating demand and increased supply. New home buyers can look forward to an ample supply of building lots next yeara big change from the shortages seen prior to 2008. Competition from the existing home market will continue to exert downward pressure on new home prices in 2010.

Moderately price homes will remain the focus of new singles demand in 2010. Builders are targeting buyers seeking new detached homes in the $450,000 -$550,000 price range. Fewer buyers of resort-oriented homes and second residences have contributed to less demand for higher priced new homes this year. This segment of the new singles market continues to face especially strong price competition from a well-supplied existing home market.

Apartment rental construction will account for the lion’s share of multi- family starts in 2009 and first half of 2010. With rents up sharply and construction costs coming down, rental construction has become a more viable development opportunity than in recent years. Reduced demand for condominiums may free up some building sites for rental construction. Starts of apartment rental housing will total 140 units this year and another 150-200 units in 2010, the highest annual levels since the early 2000s.

New rentals will face competition from the condominium market in the short term as some developers rent out unsold units and more investor- owned rentals become available. The apartment vacancy rate is forecast to increase this year and next.

Expect condominium construction to pick up later next year as the nventory of new, completed and unoccupied condominium units and supply of existing condominiums is slowly drawn down. Condominium absorption has improved during recent months, but remains sluggish. Apartment condominium starts will total 150-200 units in 2010. The townhouse condominium sector will ollow suit, with more starts next year.

Moishe Alexander’s Review:

Sustained Demand for Housing

St Johns, Newfoundland - Credit BriBriTO, Flickr

Strong fundamentals such as a solid local economy, continued inmigration and favourable employment will sustain the demand for housing within the St. John’s region throughout the remainder of this year and in 2009. Accordingly, the housing market will continue to perform well. The renovation sector will build on its recent strength, exceeding $800 million annually over the forecast period. With homeownership costs increasing, some prospective buyers remain sensitive to prices when considering the purchase of a home. However, personal income growth and a tight labour market will continue to provide support to the overall level of demand for both new and existing homes. Furthermore, energy related announcements such as Hebron and growth throughout the local oil industry continue to fuel the housing market, with unprecedented buyer demand supporting current and future house price appreciation.

Resale Marke:

Buoyant MLS® Market

Having posted record sales for several years in a row, the local resale market is expected to continue this trend, eclipsing the 4,000 unit mark this year and in 2009. Accordingly, the forecast calls for MLS® sales of 4,800 units this year, with 4,400 sales expected in 2009. With many new homes selling through the MLS® system, solid numbers for housing starts will have a positive impact on total MLS® sales over the forecast period. Unprecedented housing market activity this year has been characterized by higher than normal unit sales, constrained listings supply and sharp price increases. In fact, active listings are approximately 40 per cent lower this year versus last year and with demand expected to remain high over the forecast period, unit sales growth will be constrained by fewer listings in 2009. While favourable for sellers, very tight resale market conditions have proved challenging for buyers, resulting in multiple offers and offers above list price on choice listings. With fewer listings available, buyers have looked to the new home market instead. However, the growing new versus existing house price premium more first-time buyers are choosing existing home over a new home, adding pressure to the resale market.

Resale Market Classified as Sellers

The resale market became balanced in 2005 after three years that favoured sellers. Balanced conditions existed for less than a year, as record sales activity was offset by an increase in active listings in 2006, driving the number of listings to their highest level since 1999. As a result, the St. John’s resale market was classified as buyers until mid 2007. Subsequent robust economic activity and in-migration to the region, combined with solid resale market dynamics, positioned the market once again as a sellers market. With fewer available listings to choose from and choice listings selling quickly, prospective homebuyers continue to face challenges in their search for a new home. The average time on market has trended lower than historical norms and notable price growth has been experienced in all segments.  The current forecast is for active listings to remain low. As some sellers capitalize on recent price appreciation, others downsize from their family homes, making way for new young families in the active move-up segment. The increasingly active move-up buyer segment will continue to absorb many of these family homes. This segment will also be bolstered by returnees from Alberta coming home to St. John’s to work on energy related projects. As a result, the local resale market is expected to remain classified as sellers through to the end of 2009.

Steady Price Growth

With the market classified as sellers, expect to see steady price growth this year and in 2009. The average MLS® house price is forecast to end this year at $176,500, an increase of 18.3 per cent, followed by a further 6.2 per cent gain in 2009 to $187,500. The active move-up buyer segment will result in two-storey homes experiencing the highest price growth over the forecast period. The current cost of homeownership will continue to reduce on two-storey demand from the first-time buyer segment. As such, demand for bungalows with or without basement apartments should remain a solid alternative for this segment of the market.

New Home Market:

New Home Demand Will Continue

A favourable provincial net-migration picture, combined with local workers commuting to and from Alberta, will increase provincial housing demand this year. Activity will only retreat slightly next year to a more normalized level. Consequently, total provincial housing starts are expected to reach 3,100 units this year, with 2,725 forecast for 2009. Conditions within the St. John’s metro area will also remain favourable. Robust residential construction activity will continue due to solid economic and demographic factors, as well as an expectation of continued inmigration to the region, as a result of recent energy project announcements. The expected strength in overall home buying activity will sustain a healthy level of residential construction activity within the metro region over the forecast period. However, additional price growth, combined with higher development and construction costs, will partially reduce demand in the new home market. On the flip side, with fewer listings available within the local resale market, some buyers will continue to face difficulties in finding a home that meets their needs and may end up buying a newly built home instead.  As demand for housing increases, this situation is not expected to change significantly. Accordingly, total housing starts are forecast to increase 19.9 per cent to 1,775 units within the St. John’s region this year with activity taking a small pause in 2009 to 1,650 starts.

Flat Multiple Starts:

Activity

Multiple unit construction is expected to remain flat over the forecast period, offset slightly by higher numbers of condominiums and an increase in affordable housing projects. Continued in-migration, due to increased economic activity and employment, and demographic trends such as smaller households and an aging population, will support the growing condo market in St.  John’s. With a recent peak in supply and higher disposable incomes, demand for new semi-detached homes is expected to remain fairly flat, as buyers opt for singledetached dwellings. That being said, new lower-priced semi-detached units will remain attractive as overall house prices continue to grow. In view of this, the multiple housing starts forecast calls for 350 units by the end of this year and another 350 in 2009.

Rental Market Decrease in Vacancy Rate

Several factors will decrease the vacancy rate this year and in 2009. As homeownership costs rise, the movement of renter households to homeownership will continue to slow. However, out-migration of the 18 to 24 year-old segment of the population will persist and once again this will put upward pressure on the vacancy rate. In fact, close to 80 per cent of this age group tend to be renter households. Investment in rental housing will increase the supply only slightly this year and next. Accordingly, the vacancy rate for structures containing three or more units is forecast at 1.0 per cent in 2008 and 1.5 per cent in 2009. With the vacancy rate decreasing, expect monthly rents to increase by 6.0 and 11 per cent this year and next, respectively, as landlords attempt to recover increased costs associated with maintaining the rental stock and lower vacancies and higher energy costs exert upward pressure on rents.

Economic Trends:

Economic Growth Will Strengthen

The Hebron project continues to drive local economic growth. The ramping up of the project will contribute to stronger growth in 2009. However, declines in offshore oil production will dampen pronounced GDP growth in 2008. In fact, during the January to August period of this year, oil production decreased 9.2 per cent over the same period in 2007. Terra Nova and Hibernia are expected to continueto see declines in production over the 2008-2009 period. Higher commodity prices over the past few years have resulted in increased mineral exploration activity in the interior region of Newfoundland, as well as Labrador. However, the recent correction in commodity prices may suggest a moderation in growth. The fishery may benefit from recent declines in fuel costs and the Canadian dollar. Coming off the heels of real GDP growth of 7.9 per cent in 2007, additional growth in the final GDP number for 2008 and again in 2009 is expected.

The local labour market has performed very well in recent years, thanks in large part to the increased economic activity and growth that has been experienced as a result of the oil sector. Last year represented a 26 year low for unemployment and a 26 year high for employment. This trend is expected to continue in terms of both employment growth and the unemployment rate remaining low this year and next. The tight labour market conditions continue to exert upward pressure on wages and salaries. Overall, personal incomes continue to grow, having increased 4.3 per cent in 2007, while personal disposable income increased 5.0 per cent, with additional growth expected this year and in 2009. Retail sales were up 9.0 per cent last year and similar results are expected for 2008 and 2009. In fact, during the January to June period of this year, retail sales increased 7.1 per cent over the same period in 2007. Some of this growth has been driven by the Alberta commuter, working in Alberta and coming back during their time off, injecting their earnings into the local economy. On the population front for the first time in 16 years, the NL Government recently announced a net population ncrease of 1,436 from July 2007 to July 2008. This was driven primarily by net-migration of 1,713, as people continue to relocate for work from other provinces, particularly Alberta.

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/64271/64271_2008_B02.pdf