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.

The CMHC forecast calls for 900 single-detached starts in 2009 followed by 1,000 in 2010. The 2009 production will be the lowest number of single starts since 2005 when there were 751 foundations poured. The decline in single-detached starts in 2009 compared to 2008 is due to a number of factors, including managing a build-up in the supply of new housing units, consumer resistance to price escalation, and heightened competition from resale housing. Reduced in-migration and a moderating economy in 2009 have also played a role in this market adjustment.

At mid-year, single-detached starts were 65 per cent below the historically high 2008 figure for the same period. The slowdown in new construction has allowed the inventory of complete and unabsorbed units to decline and a stronger second half of production is expected. At the end of August, single-detached starts had recorded two consecutive months of year-over-year increases. Though there has been a recent uptick in starts activity, CMHC expects builders will limit production to prevent a rise in inventory.

In terms of total supply, there were more than 800 single-detached units under construction or completed but unoccupied at the end of August. While this is the third highest supply on record for the month of August, total supply has been in decline, on a year-over-year basis, since December 2008.

The bulk of single units in supply are those in various stages of construction. The units under construction have been declining on a year-over-year basis since October 2008. The decline in the units under construction figure is due to slower starts since June 2008. As stated, only recently have starts increased on a year-over-year basis.

The number of single units that are completed and unoccupied now lies at 142 units, up from 115 one year earlier. Though higher than last year at this time, the completed and unoccupied count has seen monthly declines since December 2008 when inventory peaked at 244 units. Competition from the resale market may be having an impact on new single absorption. Industry sources state that investors who purchased new homes in the previous two years are now creating competition for homebuilders by listing their homes on the resale market at competitive prices.

To the end of August, there have been 757 single absorptions in 2009 compared to 819 at this time in 2008. Average absorption now stands at 95 units monthly compared to the 110 units absorbed monthly in 2008.

Moishe Alexander’s Review

Economic and demographic: changes on the horizon

Quebec City, Quebec - Credit Zingaro, Flickr

Moishe Alexander says in 2007 and 2008, the Québec census metropolitan area (CMA) has stood out with a pace of economic growth above the rates recorded in other cities across Quebec. This performance is related to the investments in infrastructure and the city’s 400th anniversary activities. However, the regional economy will moderate; in fact, this has already started to be felt. This year, the tourism industry is benefiting from the record number of visitors to the multiple events held for the 400th anniversary of the city of Québec. The popularity of these activities is reflected in the tourism indicators: for July 2008, the number of people who contacted the Quebec tourist information centre rose by 37 per cent over the same month in 2007, and the accommodation indicators also show an increase (+13.2 per cent). In 2009, tourism will be less significant, which will reduce the economic spin-offs for the area. In 2008, the major investments in infrastructure helped generate growth in the job market. The nonresidential construction sector benefited from these favourable conditions with a strong increase in the number of jobs and hours worked in the area overall. During the first nine months of the year, 8,100 jobs were created in this sector. Several projects were completed, including the modernization of the Jean-Lesage Airport, the creation of the Espace 400e area, the construction of the Lévis Convention Centre and the Sheraton Hotel, the redevelopment of the Promenade Samuel-De Champlain and various sites of the Québec Port, the construction of several office buildings and the completion of road and municipal infrastructure projects. While activity will slow down in 2009, this sector will still benefit from investments in road, institutional and commercial infrastructure, such as the modernization of the sports facilities at the Université Laval (PEPS) and the repairs to the Charles-de-Koninck university pavilion, the pursuit of the modernization work at Robe Giffard Hospital, and the continuation of several commercial real estate projects. Residential construction also significantly contributed to job creation, as sustained activity continued in 2008. However, a setback is anticipated in this sector for 2009, on account of a downturn in the housing markets. The overall service sector is showing signs of stagnation in 2008, as the number of jobs fell by 0.1 per cent for the first nine months of the year. In fact, employment is down in wholesale and retail trade (-11.6 per cent), as well as health care (-8 per cent) and business services (-24 per cent), but on the rise in accommodation and food services (+6 per cent), professional, scientific and technical services (+28 per cent), finance, insurance and real estate (+10.5 per cent) and transport and communications (+16.2 per cent). The other service industries show relatively stable results. The gains in professional, scientific and technical services can be explained by the good economic performance in the area, the different infrastructure projects that stimulated job creation in the field of engineering and the regional strategies to develop industries and research centres related to applied technology and life sciences. Over the coming years, this sector will continue to be supported by the economic development efforts and strategies adopted by different stakeholders in the area. The finance, insurance and real estate sector also benefited from a favourable economic environment in 2008. In 2009, this sector will remain strategic for the area, given the presence of the 11 insurance company head offices. Public and parapublic services account for nearly one in three jobs in the area. The plan to reduce the size of the Quebec government will support a decrease in employment in the public service, but health and education needs, in line with political priorities, will bring about an increase in jobs for these services over the next few years. On the decline since 2007, the manufacturing sector is facing uncertain conditions and will be affected by the anticipated slowdown. In 2008, job creation in the CMA will be somewhat more modest than in 2007, with a gain between 1.2 per cent and 1.6 per cent, compared to 2.4 per cent in 2007. In 2009, job creation will continue, at a rate between 0.6 per cent and 1 per cent. The unemployment rate, which stands below the provincial average, should remain at around 5 per cent in 2008 and then rise slightly in 2009, as a result of more moderate employment growth. On the demographic front, the results are expected to show a small decrease, as the more modest growth in the job market should drive down net migration from 4,500 people in 2007 to 4,000 in 2008 and then to 3,800 in 2009. It is likely that the anticipated slowdown in the construction sector will cause an increase in emigration to areas where major projects are planned or petroleum development is under way. Household formation, for its part, will slow down among young people over the coming years but pick up in the group aged from 65 to 74 years. The number of people aged 75 years or older should also grow less rapidly. These demographic changes in the CMA will have impacts on the housing market and, more specifically, on demand and tenure. In fact, demand will be less significant in the single-detached home segment but will rise for condominiums, as they represent an interesting alternative for households wanting to lighten the burden of maintaining a house.

Mortgage rates

Moishe Alexander says 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.

Resale market to ease

Moishe Alexnader says sales recorded through the Service inter-agencies / Multiple Listing Service (S.I.A. / MLS)® reached a peak in 2007, with just over 8,100 transactions, for an increase of 6 per cent over 2006. The transactions volume will again be high in 2008, but the market will stabilize, with a small gain of 1 per cent. In 2008, new listings have risen, but the steady demand is still giving sellers more of an edge during negotiations. The growth in prices remains above inflation, as the average price has now reached $194,950, up by 10 per cent over 2007. The solid economic performance, the healthy job market and favourable mortgage lending conditions have contributed to maintaining a strong demand. The price level remains higher in the centre of the CMA, as the average price for single-detached houses in this sector is about $60,000 greater than the averages noted on the South Shore and North Shore (third quarter of 2008). In 2009, the increase in the number of households aged from 65 to 74 years will support a new rise in listings, since some of these households will turn to the condominium market. In addition, the decline in the formation of young households over the coming years will ease pressures on demand for starter homes. The economic slowdown will also drive down demand, but the price level will favour the existing home market, as prices are lower on this market than on the new home market. The price increases will therefore still be above inflation but will be less significant (+5 per cent) than in 2008, as the average price will reach $204,700 in 2009. It is expected that sellers will lose some of their bargaining power. Certain market segments will still remain tight, though, such as the semi-detached home segment, where prices are more affordable. For the first six months of 2008, the average selling price of semi-detached houses attained $166,500, or $43,000 less than the selling price of single-detached homes. The average time to sell is in fact shorter for semi-detached homes (53 days) than for single-detached houses (72 days), and this trend will continue. The condominium segment is not as tight, although sellers still have a slight edge. In fact, in the second quarter of 2008, the seller-to-buyer ratio was 5.6 to 1, versus 6.3 to 1 for the same period in 2007. In 2008, the new home market is following the same trend, as condominium starts are up significantly (+62 per cent). For 2009, it is expected that condominiums will again be in demand: first, their affordability is a definite asset in a context of sustained price hikes and, second, the greater number of households aged from 65 to 74 years will fuel demand for homes of this type.

Housing starts to fall in 2009

Moishe Alexander says after reaching a peak in 2004, housing starts fell in 2005 and 2006. In 2007, a small increase was observed on account of the rise in the supply of retirement housing. In 2008, starts of this type will set a new record, with the construction of close to 950 units. Likewise, the supply of new condominiums will also grow significantly (+62 per cent). These two gains will drive up the overall housing supply, bringing total starts to 5,430 units (+3 per cent) this year. In 2008, the decrease in singledetached home starts will reach 10 per cent, as rising prices and municipal intensification efforts are rather favouring semi-detached houses. In fact, this phenomenon has now been observed for several years in the CMA. In 2009, the economic slowdown, along with the formation of fewer young households and a growing supply of existing homes, will weaken demand for new singledetached houses. These factors, combined with the higher prices on the new home market, will cause starts to fall by 15 per cent in 2009. With the lower demand, prices will rise less significantly (+5 per cent). Semi-detached houses (multiplefamily housing segment), however, will remain popular among consumers, on account of their relative affordability, so starts should remain at the same level as in 2008. Starts of multiple-family (semidetached, row, condominium and rental) housing will be on the rise in 2008 but will decline markedly in 2009. This situation will be due to the decrease in demand for rental housing for seniors. In fact, not only did starts of this type set records in 2007 and 2008, but fewer people will be turning 75 years old in the near future, which will curb demand for retirement housing. This is evidenced by sharply rising inventories and a major increase in the short-term supply in August 2008. In addition, the vacancy rate is expected to climb in 2009. Condominium starts will be numerous in 2008 and again in 2009. Dwellings of this type are popular thanks to their affordable prices and to the changes in the demographic profile in the CMA. The formation of more households aged from 65 to 74 years and the appeal of this housing type, even among first-time home buyers, will keep demand strong, and condominium starts will reach close to 1,100 units in 2009. This result represents a decrease of 10 per cent from the level recorded in 2008 but corresponds to the average for the last five years. The traditional rental market is running out steam in 2008, and only small projects with 20 units or less are being added to the existing housing stock. High construction costs are limiting the development of the rental market, which remains the most affordable housing market segment. In 2009, starts should remain below the average for the last five years. Demand in this segment is coming mainly from newcomers to the area, as household formation among people aged less than 35 years will be slightly negative in 2008 and 2009.

Rental market: no easing in the short term

Moishe Alexander says the last time the traditional rental housing market was relatively softer dates back to 1998, when the vacancy rate stood at 3.3 per cent. At the beginning of the current decade, the rates reached levels of 0.3 per cent and 0.5 per cent. Since then, the market has eased somewhat, but the vacancy rates remain very low. This situation will persist in 2008 and 2009, as rental-housing construction is idling and remains well below the volumes observed over the last five years. The vacancy rate will stay at 1.2 per cent in 2008 and 2009, given that net migration will remain at high levels (4,000 and 3,800 people, respectively) and that fewer renter households will be accessing homeownership as a result of the economic slowdown. The average rent for two-bedroom apartments will rise by 2 per cent in 2008 and by 1.5 per cent in 2009, on account of changes in energy costs.

You can find the entire report in PDF format through the following link:
http://www.cmhc-schl.gc.ca/odpub/esub/64279/64279_2008_B02.pdf