Canadian Funding Corp. Reviews CMHC Statistics

With a gradually strengthening job market and still favourable financing conditions, the housing market situation in the Sherbrooke census
metropolitan area (CMA) will be somewhat different this year1. After having stagnated in 2009, existing home sales registered through the Multiple Listing Service (MLS)® will rise by 4 per cent next year. Housing starts, for their part, will fall by 14 per cent in 2010. This decline will result from the level of housing activity in 2009, and not from the deterioration of economic conditions.

Employment to increase slightly in 2010 In 2009, the Sherbrooke area was spared by the slowdown in economic activity that affected all industrialized countries. During the first six months of the year, the average number of jobs2 in the area declined by 2 per cent, with losses registered in both part-time and full-time employment. However, the situation improved somewhat from July to September, as the number of jobs rose by 1.5 per cent. While this rise was entirely attributable to the gains recorded in part-time employment, full-time job losses are moderating more and more, suggesting that increases could occur shortly. Thanks to this renewed economic activity, the Sherbrooke CMA will end the year with 83,000 jobs, or the same level as in 2008.

Canadian Funding Corporation: In Gatineau, unlike in the vast majority of areas across Canada, residential construction began the year on a strong note. In fact, housing starts climbed by 4 per cent in the first quarter of 2009, compared to the same quarter in 2008. This increase may have appeared to be a regional phenomenon, as the economic structure in the area is based on the public sector and so is immune to market fluctuations, but this was not the case as the Ontario part of the census metropolitan area (CMA) did not post the same pace and saw starts fall by 22 per cent year-over-year. Therefore, the gain was only observed in the Quebec part of the CMA and, according to the latest data for April, this trend is continuing. Even if the level of activity has exceeded expectations until now, a detailed analysis of the Economic the housing factors influencing Forecasts sector revealed that residential construction will slow down in the coming months and end the year below the 2008 levels.

Labour market to weaken in 2009

Employment was particularly strong in the area in the last 10 years. During that time, the number of jobs steadily increased, with the average annual growth rate exceeding 5 per cent. In 2008, there were 52,000 more jobs in the area than in 1998. This gain was mainly due to a job-generating economy, which made Gatineau the most dynamic CMA in Quebec. However, the area was not spared by the prevailing global economic conditions. Many Gatineau workers have already felt the effects, as job losses have been accumulating since July 2008. The unemployment rate, which was below 5 per cent in 2008, started to grow rapidly at the beginning of 2009 and reached 5.6 per cent in April. Over the past 12 months (from April 2008 to April 2009), close to 8,200 jobs have disappeared.

Migration still positive in the area

Despite the economic slowdown, the Gatineau area posted a fairly strong performance compared to other areas across Quebec, which will ultimately allow it to retain more people. Net migration has been positive since 1991 and will remain so this year and in 2010. According to the preliminary figures for 2008, there were 2,200 more in-migrants than out-migrants, and this surplus is expected to be maintained at around 1,900 people in 2009 and 2,000 people in 2010. Newcomers will arrive mainly from elsewhere in Quebec and other countries. Of course, the Gatineau area will attract people from other provinces, particularly Ontario, but will see as many individuals leave. At the beginning of the decade, many Ontarians were crossing the Ottawa River, but the wave has lost some momentum since 2006, even with the growing gap between the average home prices in Ottawa and Gatineau, which has now reached $95,000.

Mortgage rates

Mortgage rates are expected to be relatively stable throughout 2009, remaining within 25-75 basis points of their current levels. Posted mortgage rates will increase very gradually during the course of 2010, reflecting a rise in government of Canada bond yields. For 2010, the one year posted mortgage rate will be in the 4.75-6.00 per cent range, while three and five year posted mortgage rates are forecast to be in the 5.00-6.75 per cent range.

Resale market activity to decrease slightly in 2009 and 2010

Like the new home market, the resale market will record a slight decrease in 2009. Following a 10-per-cent reduction in sales registered through the Multiple Listing Service (MLS®) in 2008, transactions are expected to decrease by 9.5 per cent this year, before stabilizing in 2010. In terms of sales, close to 4,000 properties are forecast to be sold in 2009, or 400 fewer than in 2008. While relatively low interest rates are encouraging some people to borrow, several factors will have a cooling effect on consumers: the current home prices, the global economic slowdown and the uncertainty it brings, the difficulties experienced by some industries and the job losses in the area. Sales will therefore fall this year.

Starts decline in 2009, growth returns in 2010

Canadian Funding Corporation cites that after exceeding 11,000 units for five successive years from 2002 to 2007, total housing starts across the Edmonton Census Metropolitan Area (CMA) declined by nearly 56 per cent in 2008. Housing starts across Metro are forecast to decline by 51 per cent this year to 3,250 units. Last year, single-detached house builders bore the brunt of the downturn as the industry struggled to contain the rise in spec home inventories. In contrast, most of the decline this year will occur in multi-family where inventories continue to mount. A weakened economy impacted by job losses, rising unemployment and slower immigration will account for the continued downward adjustment this year. In 2010, a gradual turnaround in the economy of the Capital region will result in a 26 per cent improvement in housing starts to 4,100 units.

However, next year’s output will represent less than 40 per cent of homes built on average during the 1999 to 2008 period which represents the strongest decade for housing starts on record across Greater Edmonton. Stronger economic growth, higher gains from migration, and a return to balanced conditions in the resale and new home markets will be needed prior to total annual starts rebounding to the longer term average of between 6,000 to 7,000 units.

Single-Detached Starts to Improve in 2010

Single-detached home builders across Metro Edmonton started 2,613 units in 2008, representing a 66 per cent drop from the previous year and the weakest performance since 1995. Activity to the end of March suggests that 2009′s production will fail to match 2008. Nonetheless, downward trends in the new home inventory combined with the lowest number of units under construction in March since 2002 sets the table for a modest turnaround at some point in 2009. CMHC’s view is that year-over-year improvements will occur during the second half 2009 but will not arrive in time to lift this year’s numbers above 2008 levels. Single starts in 2009 will decline another 24 per cent to 2,000 units before improving to near the 2,600 unit mark in 2010. While representing a healthy 30 per cent gain over the current year, 2010′s outlook represents about one-third the number of homes started annually between 1999 and 2008.

The turning point in single starts should occur this year provided certain conditions are in place. Total supply, which is units in inventory plus those under construction, began to decline in the first quarter of 2008 and continues to move lower in 2009 due to the major slowdown in construction that began in earnest in the fall of 2007. New house inventory stood at a record level in August 2008 but has generally been receding since then. These trends will need to be sustained in the coming months so that house builders feel confident this fall that inventory replenishment is justified to prepare them for the important spring selling season.

Economic Growth Returns in 2010

The downturn in the energy sector will impact growth across the Capital region this year and into 2010. Edmonton remains Alberta’s fore- most supply, service and staging area for the energy sector. With a substantial number of drilling rigs expected to sit idle this year, the impacts of this slowdown will be widespread. Lower global oil prices will reduce the output from the manufacturing sector, particularly the area’s petroleum upgraders and refineries. The construction sector will also be held back by low levels of residential activity and a slowdown in
non-residential activity as well. A number of large-scale energy-related projects slated for the Alberta Industrial Heartland area have been scaled back or put on hold until the business climate improves.