Moishe Alexander and Canadian Funding Corporation Review CMHC Reports

Posted by Moishe Alexander

Following a 56 per cent decline in 2008, total housing starts across the Edmonton Census Metropolitan Area (CMA) are on pace to decrease by another 24 per cent this year to 5,000 units. This will represent the lowest level of activity for the region’s home builders since 1997. While single- detached construction has staged a modest recovery since the summer, a continued downturn in the multi- family sector will hold down this year’s numbers. In 2010, a sustained improvement in single starts combined with a moderate rebound in multiples will boost total starts by 29 per cent to 6,450 units. While representing a sizable gain over this year’s volumes, total starts next year remain a fraction of the 10,600+ units started on average during the 10 year period 1999-to-2008.

Single-detached starts increased by 14 per cent during the first nine months of 2009 but the improvements have come on gradually as the year has progressed. Activity levels were down by 39 per cent year-over-year at the end of the first quarter but have generally exceeded last year’s production since then. Price reductions, various incentives, and low mortgage rates have helped to bolster demand in 2009. This trend should continue for the balance of 2009, with annual production nearing the 3,200 unit mark. This will represent an increase of 22.5 per cent over 2008 but will still be well below activity levels reported over the past decade. Look for these gains to continue in 2010, with single starts of around 4,200 units. The tepid outlook for employment growth will temper the rate of increase going into 2010. Inventory levels, including show homes, peaked in August 2008 and have been trending downward throughout much of the past year. As shown in Figure 2, the show home component of inventory has started to move upward as builders ramp-up marketing efforts. The inventory of complete and unabsorbed spec homes, meanwhile, has trended to its lowest levels since September 2006.

Statistics Canada’s New House Price Index (NHPI) is forecasted by CMHC to decrease by 10.5 per cent this year before staging a two per cent improvement in 2010. These price changes have begun to show up in CMHC’s market absorption surveys but the overall average absorbed price has held up surprising well in 2009. To the end of August, the average absorbed price increased this year nine per cent to $545,327. While units priced under $400,000 and over $600,000 have gained market share this year, mid-range product selling between $400-600,000 lost ground compared with last year.

CMHC forecasts an average absorbed single-detached price this year of close to $535,000, for a 4.5 per cent gain over 2008. The expected median value will be much lower as the impact of high-priced homes is less using this measure. In 2010, the absorbed average price will soften due to the lagged effect of when homes are priced (often before construction begins) and when they are captured in our survey (which is at completion). The pressure for higher negotiated selling prices will come from builders who had trimmed their margins over the past year in order to clear their unsold inventory. With better economic times ahead, land and labour costs as well as material prices such as lumber and concrete are expected to increase.

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Posted in CMHC, Canada, Ontario, affordable housing, moishe alexander