Excerpt from CMHC Housing Outlook Conference Calgary November 2012
By Lai Sing Louie
According to CMHC, the pace of economic growth in Alberta is moderating but will remain above the national average. Following a 5.2% gain in 2011, expect the economy to expand by 3.1 and 2.9 percent in 2012 and 2013. Global economic uncertainty and stable growth in the US, will slow the gain in Alberta’s energy exports. The value of Crown Land Sales, a leading indicator of drilling activity, is substantially lower this year and will lead to less drilling in 2013. On the positive side, oil sands development will remain a major driver of investment, supporting economic growth. The economy will also be propelled by consumer spending, which is expected to increase into 2013.
Moderating economic growth will ease employment growth next year but will keep the unemployment rate below 5%. Economic opportunity in Alberta has been a draw for migrants. Interprovincial migration is expected to show large gains through 2012 as unemployed workers move to take advantage of employment opportunities. Also supporting migration is international migration and a rise in temporary foreign workers, those from outside the country helping to address local labour needs. Overall, net migration is projected to rise from 45, 039 in 2011 to 66,500 in 2012 and remains elevated at 49,500 in 2013. Migration inflows will be lower next year but supportive of housing demand.
In Alberta, housing starts are projected to rise 26% to 32,400 units in 2012 and then moderate to 31,200 in 2013. Single detached starts are projected to rise by 15% in 2012 to 17,500 units and remain near this level in 2013. While construction has moved higher this year, the number of units accumulating in inventory has decreased from last year. In 2012, single detached builders have been able to increase production to meet demand without significant additions to inventory.
Meanwhile, multiple housing starts in Alberta are projected to reach 14,900 units in 2012, a 425 increase over 2011. In 2013, supply management will ease new construction to 13,600 units. Since the low production of 5,954 units in 2009, multi-family starts have increased in each successive year. As a result, the number of units under construction is back to the ten-year average. Inventory levels have declined over the past year but remain elevated and are at risk of rising next year. Without some moderation in new condominium construction, expect additions to inventory as constructions progresses in 2013.
In the resale market, MLS® sales in Alberta are on track to rise 12% to 60,200 units in 2012. In 2013, MLS® sales will increase less than 2% to 61,000 units. Incremental increases in mortgage rates in 2013 will increase monthly carrying costs, but this will be offset by employment and income growth as well as elevated migration. Many of Alberta’s resale markets have transitioned from buyers’ to balanced market conditions in 2012. As a result, the marginal price growth of 0.3% in 2011 is projected to increase by over 2% in 2012. In 2013, all major markets are projected to be in balanced market conditions. This will allow the average MLS price to rise from $361,700 in 2012 to $371,600 in 2013.
To read CMHC’s latest Housing Outlook for Canada and the Provinces click here: https://www03.cmhc-schl.gc.ca/catalog/productDetail.cfm?lang=en&cat=63&itm=43&fr=1355251910607
Lai Sing Louie is a Regional Economist for Canada Mortgage and Housing Corporation for the Prairie and Territories region. He can be reached at llouie@cmhc.ca or (403) 515-2991.
REIN™ Insights
REIN has always favoured an economic fundamentals approach to forecasting housing market performances. Using this more structural approach, Alberta will once again be the favoured choice over the other provinces for long term sustainable real estate market performance. Although the province is mostly known as a pure oil and gas play, the province is actually a source of four of the top resources that the world will have an increasing demand for, we call them the 4 F’s (Food, Fuel, Fertilizer and Forestry). This demand is already proven to bring country leading job growth to the province, which in turn attracts people from across the country and around the world. In fact, it has been forecast that the unemployment rate will drop below 4% in 2013 despite the large influx of people. Meaning, no matter how quickly the population grows, the provinces economy will create even more jobs that need filling. And these 2013 growth numbers do not depend on either the Northern Gateway or Keystone XL pipeline being approved. If either of those projects receive the green light, there is no telling how we will house the next wave of workers that are going to be required.
For the investor, this is great news as the majority of these new Albertans will need a place to live and due to a move to a new job or region will need to rent (rather than purchase).
Another plus for property investors in Alberta are the Landlord & Tenant laws which are considered the most balanced in the country. Average weekly earnings are high and consumer confidence is up.
What does this all lead to from a housing market perspective? First off, using this economic structural analysis approach Alberta was recently ranked as having five of the top ten Canadian cities to invest in real estate over the next five years. That is an amazing feat for a province with only about 10% of the nation’s total population. Here is a direct link to this extensive Top Cities research.
The influx of workers expected to move to Alberta over the next decade will fuel the province’s housing demand. Housing starts are projected by CMHC to rise 26% to 32,400 units in 2012 before moderating to 31,200 units in 2013. Knowing the underlying economics and the demand for multi-family housing options, REIN believes that housing construction should surpass 2012’s numbers, which were the highest level since the recession, showing Alberta’s economy is once again firing on all cylinders.
If the united States heads back into recession (a very good possibility) this will slow Alberta’s , we will see a slowdown in the province’s exports (particularly in the energy sector), which of course will slow the rate of job growth in the province and put a bit of a damper on new home construction. However, even if the province’s housing market does experience a slowdown next year, Alberta will still come out at or near the top of all Canada’s provinces when it comes to economic growth. With the prevalence of the province’s oil and gas industry in the news as of late, it is important to remember that Alberta is not a one-industry province – the performance of other sectors will continue to boost economic and job growth in 2013.
CMHC’s housing outlook projects net migration levels to remain elevated in 2013. The organization’s prediction of 49,500 people in 2013 is based on Statistics Canada forecast data, which is the most reliable data around. While this number is quite a bit lower than the record 66,500 expected to migrate to the province in 2012, migration levels are now back on par with pre-recession levels. However, provincial intra-migration inflows will most likely be lower in 2013, as other regions in the province begin to grow economically, but the population growth will still be very supportive of housing demand.
Alberta’s low unemployment rate and booming economy will continue to attract workers for years to come. According to the Government of Alberta, the province’s labour market is forecast to grow by approximately 607,000 workers in the next decade, an annual increase of 2.4%. A net increase of approximately 492,000 workers is expected to join the labour force, leading to a potential labour shortage of 114,000 workers. This crunch will further decrease employment rates and increase average wages as employers look to attract workers from across the nation and the globe. And since people that are new to a region tend to rent for a minimum of two years, we will also see a boost in demand for rental accommodation.
According to CMHC, the average price of a home in Alberta will grow by 12% in 2013. While this may seem like a large increase, Alberta remains one of the most affordable provinces to live in the whole country (only Atlantic Canada is more affordable). RBC’s Affordability Index shows that as of November 2012, only 32.7% of a median pre-tax income is needed to service the average cost of mortgage payments (principal and interest), property taxes, and utilities on a detached bungalow. In addition, the real estate market is more affordable today than the long-term average of 35.6% (calculated from 1985 to today). Even as the market values begin to move upwards throughout the year, so will the rents which means that in 2013 real estate investor should still see decent cash flow on well selected rental properties.
The province of Alberta is still one of the best places in North America to invest. Although it is important to note that not every property will do well and additional property specific analysis is important, Alberta’s economic fundamentals are pointing to a continued Alberta Advantage for those who focus on long-term economic realities.
Melanie Reuter is the Director of Research for The Real Estate Investment Network and has been with the company for seven years. She has a Master of Arts Degree from California State University, San Bernardino and a Bachelor’s Degree from Simon Fraser University. To read more of Melanie’s insights, please go to www.reincanada.com.
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Calgary in 2013 – Where Is Everyone Going To Live?
Excerpt from CMHC Housing Outlook Conference Calgary November 2012
By Richard Cho
Supported by low mortgage rates, strong job growth, and a sharp increase in net migration, demand for new homes in the Calgary Census Metropolitan Area (CMA) has increased in 2012. In addition, the supply of existing homes and new multi-family units has also declined from their previously elevated levels. Under these conditions, total housing starts in 2012 are on pace to increase 33% to 12,400 units. Although economic growth next year will continue to support demands, we expect a slight moderation in job creation and net migration. At the same time, multi-family builders will reduce production to adjust to the higher number of multi-family units under construction and potential inventory additions. CMHC is forecasting total housing starts to decline to 4% year-over-year, reaching 11,900 units in 2013.
Single-detached home builders have been busier this year, benefitting from less competition in the resale market and lower mortgage rates. At the same time, average weekly earnings have risen and employment growth is on track for its strongest performance since 2008. Single-detached starts are forecast to finish 2012 with 5,700 units, up 12% from 2011 levels. Demand for new homes will continue to improve in 2013 as buyers and migrants take advantage of Calgary’s labour market and some existing home owners capitalize on the equity gains and move-up. In 2013, CMHC forecasts single-detached starts to increase 4% to 5,900 units.
The upward trend in Multi-family productions which gained momentum in the second half of 2011 has continued this year. By year- end, multi-family starts are forecast to reach 6,700 units. With the start of many new multi-family projects this year, the number of units under construction has also increased. Some of these units will represent additions to inventory when completed and will inhibit construction in 2013. CMHC is forecasting multi-family starts to remain above historical norms in 2013, but to moderate 10% to 6,000 units.
Demand for homes in Calgary’s existing home market has been impressive thus far in 2012. Labour market conditions in Calgary have been favourable, attracting migrants form other regions and increasing housing demand. Sales in Calgary are forecast increase 16% in 2012 to 26,000 units, the highest level since 2007. In 2013, modestly higher mortgage rates, combined with slower pace of job creation and net migration, will moderate sales growth. MLS® residential sales are anticipated to rise 2% to 26,500 units.
The average price in Calgary has been rising in 2012 as a decline in active listings has coincided with an increase in sales. The average price for the Calgary region is forecast to increase 2% from $402,851 in 2011 to $411,000 in 2012. Balanced market conditions are expected to persist for the remainder of this year and into 2013. The average price in 2013 is expected to reach $422,000, up almost 3% from a year earlier.
After declining to 1.9% last year, the apartment vacancy rate in October 2012 is forecast to decrease to 1.7%. The vacancy rate in October 2013 is forecast to remain near current levels, averaging 1.5%. With the vacancy rate in Calgary declining for the third consecutive year, incentives will disappear and average rents will move higher. The average two-bedroom rent in October is expected to reach $1,150 in 2012, up from $1,084 in 2011. The upward pressure on average rents will extend into 2013 as a result of low vacancies. CMHC is forecasting the two-bedroom rent in October 2013 to average $1,200 per month.
Full Calgary Housing Market Outlook Report
Richard Cho is a Senior Market Analyst with Canada Mortgage and Housing Corporation. He can be reached at rcho@cmhc.ca or (403) 515-2996.
REIN™ Insights
REIN is HOT on Calgary’s potential and in fact, named it THE top investment city in all of Canada for the period of 2013 – 2016! This ranking came as a result of extensive research into the underlying economic fundamentals driving Calgary’s economy as well as the current housing market’s response to these fundamentals.
CMHC’s outlook on the city is also positive but we believe their forecast understates the potential for growth in the coming years. The job market IS strong and is poised to lead the country in job and population growth. Immigration from other parts of Canada as well as abroad is putting a steep downward pressure on vacancy rates and a strong upward movement on rents. This pressure is not predicted to ease significantly in the coming years. The high average-weekly-earnings in the city mean more disposable income in this PST free province, which is creating a country leading consumer confidence level. This is creating further stimulation of the economy through consumer spending, which in turn brings increased employers, people, and demand for housing.
This brilliant circular phenomenon is a powerful economic trend that real estate investors can get in front of. Consider the vacancy rate of 1.7%, which might as well read “no vacancy!” This puts upwards pressure on rents. And speaking of rent, CMHC reports that that average rent for a two-bedroom unit was to increase to $1150 in October 2012 (a date that has already passed, and in fact an average rent that has already been surpassed. In 2013 they project that rents will increase to $1200, which is also understated. CMHC measures its apartment rents from purpose-built rentals which typically command less rent than privately rented units, so in reality average rents are much higher. Although CMHC’s rents are a good apples-to-apples measurement, REIN finds their conclusions quite low versus on the street prices. Rents are moving monthly so an investor must pay very close attention to the current rents for properties like they own. Take a look in local papers and online sites for rentals to find current rents.
According to CMHC, Calgary housing prices will increase by 2% in 2013. Calgary remains an affordable place to live when one considers the income levels compared to the housing prices. For example, RBC’s Affordability Index shows that 36.7% of a median pre-tax income is needed to service the average cost of mortgage payments (principal and interest), property taxes, and utilities on a detached bungalow. Compare this to any other major city in Canada and Calgary is the second most affordable place after Edmonton (Vancouver residents would have to fork out 91% of their pre-tax salary).
Further, today’s market is more affordable than the average of 40.1% (calculated from 1985 to today) due to average weekly earnings moving upwards quickly, low mortgage interest rates and the overall market performing at economic fundamental level. The current affordability percentage falls in the sweet spot for investors: houses are not so affordable that everyone can buy one, but they are not so high as to prevent cash flow for the real estate investor. Calgary Transportation Effect Report
Remember, long term cash flow is the result of a good deal negotiated in an area just like Calgary that is rich not only in employment and in-migration but also has a sustainable economy.
Melanie Reuter is the Director of Research for The Real Estate Investment Network™
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Edmonton in 2013 – Is CMHC’s Forecast Wrong This Time Around?
Excerpt from CMHC Housing Outlook Conference Calgary November 2012
By David Lan
Strong economic conditions, including low mortgage rates, robust job growth, and continued gains in net migration, have contributed to higher housing starts in 2012 in the Edmonton Census Metropolitan Area (CMA). At the same time, lower supply in the competing resale market and declining rental vacancies have prompted some households to look to the new home market to meet their housing needs. Under these conditions, total starts in 2012 are forecast to be 12,000 units, representing an increase of 295 over the previous year. In 2013, total starts are expected to remain elevated yet moderate by 10% to 10,800 units. Economic conditions will remain positive and support new home construction, however modestly higher mortgage rates and reductions in the pace of job growth and net migration will slow demand.
Single detached starts in 2012 are forecast to reach 5,600 units, an increase of 12% from 5,017 units in 2011. In 2013, however, demand for new single detached homes will moderate. While higher levels of employment will continue to bring more potential buyers, competition from the resale market will impact the traffic to builders’ sales offices, contributing to lower single detached starts. CMHC is forecasting single-detached starts to decrease 2% to 5,500 units in 2013.
Multi-family starts in 2012 are on pace to reach 6,400 units. With the start of many multi-family projects this year, the number of units under construction has also increased. Some of these units will represent additions to inventory when completed and will inhibit construction in 2013. CMHC forecasts multi-family starts to decrease 17% next year to 5,300 units.
The strong growth in full-time employment in 2011 drove demand for existing homes in 2012. MLS® residential sales in Edmonton are on pace to increase 6% in 2012 to 18,000 units. In 2013 moderating full time job creation and modestly higher mortgage rates will result in a slower gain in existing home sales. MLS® residential sales are anticipated to rise 2% in 2013 to 18,400 units.
The average MLS® price in 2012 for the Edmonton region is forecast to increase 2.6% to $334,000. Balanced market conditions are expected to persist for the remainder of this year and into 2013. The average price is expected to reach $341,000, up 2.1%
With the apartment vacancy rate in Edmonton expected to decline, the average two-bedroom rent in October is expected to reach $1,065 in 2012, up from $1,034 in 2011. The upward pressure on average rents will extend into 2013 as a result of low vacancies. CMHC is forecasting the two-bedroom rent in October 2013 to average $1,105 per month.
For the full report, visit: http://www.cmhc-schl.gc.ca/odpub/esub/64343/64343_2012_B02.pdf?fr=1355254658611
David Lan is a Senior Market Analyst with Canada Mortgage and Housing Corporation in the Edmonton Office. He can be reached at dlan@cmhc.ca or (780) 423-8729.
REIN™ Insights
During a time of economic uncertainty, Edmonton’s real estate market has continued to provide investors with unparalleled opportunities. In fact, its recent dip (2008 – 2010) in average sale price and volume proved to be a strong buying opportunity to those who understand long term economic fundamentals. Over the last decade, REIN™ has consistently ranked the city as not only one of the real estate investment markets in the province, but the entire country and continued to do so during the downturn as our forecasts were based on the underlying economics of the city rather than simply real estate activity.
Earlier this month, REIN™ released the 2013-2016 edition of the Top Alberta Investment Towns report and ranked Edmonton as the second-best city in Alberta in which to invest in real estate over the next three years, clearly showing our belief that the city will continue to out-perform most Canadian cities for years to come.
While CMHC’s housing market forecast for Edmonton in 2013 is primarily positive, the outlook downplays the city’s potential for growth in the next few years. The city is an economic powerhouse, recording the fourth-highest GDP growth of all Canadian cities in 2011. With just two weeks left in the year, it’s safe to say that Edmonton will once again be declared one of the country’s economic leaders in 2012. A phenomenal $196+ billion in major capital projects are planned for the Edmonton region over the next five years and this in a region with only 1,000,000 people; meaning that job and population growth is poised to be strong for many years to come.
This influx of people moving to Edmonton looking for work will continue to fuel the demand for both rental and ownership properties. The city’s increasing average wages means we can expect an increase in consumer spending, which will stimulate the economy and in turn create even more jobs. This economic cycle is one that many strategic industrial, residential and commercial investors have begun to understand and take advantage of. Strong migration flows will continue to support rental demand in the city, as the majority of people who move to a new region tend to rent for two to three years before purchasing their own property. The Edmonton CMA recorded an ‘official’ CMHC vacancy rate of 2.7% in the spring of 2012, an extremely low rate when you factor in the amount of vacant units left that would be considered “quality” rental units by potential tenants. The vacancy rate is expected to drop even further in 2013, putting an upward pressure on the average rent.
CMHC’s outlook pegged the average rent for a two-bedroom unit in Edmonton at $1,065 in October 2012 – a rent that our active Edmonton REIN™ investors told they were already achieving months before. One downside to CMHC’s data is the organization’s use of purpose-built rental units (which typically command less rent than privately rented units) to measure average rents. While CMHC’s numbers provide investors with a good starting point, their conclusions are often lower than actual on-the-street prices. Further, rents in the city move monthly, so relying on a report that comes out annually will not provide investors with an accurate picture of the current residential market. It does provide a good comparison to other cities CMHC tracks or as a longitudinal examination over time. Diligent investors will also look at rental rates posted in local newspapers and rental websites for the latest market statistics for the month they are looking to re-rent their units. This is going to be especially important in 2013 as upward rent pressure will be strong and prices will move more quickly than we have seen in the last four years.
The average price of a home in Edmonton is forecast by CMHC to increase by 2.6% next year. According to them, Edmonton should record an average price of $334,000 by the end of 2013 – a moderate growth, and one that will see the city keep its title as one of the most affordable markets in Canada. REIN™ believes that CMHC’s average increase will be lower than what the market bears.
RBC’s Affordability Index shows that 31.1% of a median pre-tax income is needed to service the average cost of mortgage payments (principal and interest), property taxes, and utilities on a detached bungalow in Edmonton. Compare this to any other metropolitan centre in Canada, and Edmonton is the most affordable market in the country (including Saskatchewan and the Maritimes). In fact, today’s market is more affordable than the city’s 27-year average (calculated from 1985 to today) of 33.5%. Rapidly increasing average weekly earnings and rock-bottom mortgage rates have created the perfect storm for property investors: home prices that are high enough to prevent some people from entering the homeownership market, but not high enough to prevent decent cash flow for the property investor.
Remember to do all your homework when researching cash flowing properties in Edmonton. The diligent investor purchases properties in areas that are poised to see price increases from planned transportation improvements.
Allyssa Epp is a Research Analyst for The Real Estate Investment Network™
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January 8, 2013
Updated: January 8, 2013 | 8:27 am
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Royal LePage expects mild real estate dip in 2013
By David Paddon The Canadian Press
Ryan Remiorz For sale signs stand in front of a condominium on September 27, 2011 in Montreal. THE CANADIAN PRESS/Ryan Remiorz
TORONTO – The latest Royal LePage report on Canadian real-estate shows average housing prices were up between two and four per cent in the fourth quarter of 2012 compared with the same time last year.
However, the same survey shows average prices for the three main categories of housing were down from the third quarter of 2012 — a period that included new mortgage rules that have discouraged many first-time buyers.
The quarterly market update by the Toronto-based real estate marketing firm forecasts a brief, mild dip in sales volume in the first half of this year but not a major downturn.
It says average prices for Canadian residential real-estate will rise a further one per cent by the end of 2013, as some owners opt to delay selling their property until conditions improve.
“Our sturdy domestic economy and encouraging employment trends have emboldened sellers, and some have opted to let market conditions adjust before listing,” said Phil Soper, Royal LePage’s president and chief executive.
“Simply put, fewer home owners listed their properties in the second half of the year, which kept inventory levels lower, and supported home values.”
The Toronto-based real-estate marketing firm notes that there are a wide range of conditions in cities across Canada.
It says slower sales and a flattening of home prices in Vancouver and Toronto — Canada’s two largest and most-expensive real-estate markets — will have a significant impact and drag down the national averages this year.
It says some markets, particularly in Alberta and Saskatchewan where the resource-oriented economies have been vibrant, are poised for significant growth in 2013.
The Royal LePage quarterly House Price Survey looks at three categories of housing — detached bungalows, standard two-storey and standard condominiums — in 16 local markets and calculates national averages.
The latest survey, based on sales between October and December, showed that national average price for detached bungalows was $356,790 — up 3.6 per cent from a year earlier but down from the third-quarter average of $377.773.
A similar pattern of year-over-year increases but quarter-to-quarter declines were evident in the other national average categories.
Many observers have noted that tighter mortgage rules brought in last July have made it more difficult for first-time buyers to borrow money, since they must qualify for a 25-year payback period. That’s down from 30 years.
The national average price for two-storey houses was $390,444 in the fourth quarter, up four per cent from a year earlier but down from $403,747 in the third quarter.
The national average price for condos was $239,374, up two per cent from a year earlier but down from $243,607 in the third quarter.
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