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July 2007

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New Housing Price Rises Decelerating - July 12, 2007

New housing prices in Canada increased at their slowest pace in just over a year in May, continuing a trend in deceleration that started in September 2006. Contractors' selling prices in May were 8.6% higher than they were in May 2006. This increase was slightly slower than the 8.9% year-over-year gain recorded in April. According to a report released this morning by Statistics Canada it was the slowest increase since April 2006. However, May still marked the 14th consecutive month of year-over-year increases above 8%.

On a monthly basis, new housing prices were up 1.1% from April. The New Housing Price Index for May reached 152.1 (1997=100). Housing prices in Saskatchewan (+30.7%) and Alberta (+27.9%) accounted for most of the 8.6% year-over-year increase in May. Year-over-year gains of only 2.6% in Ontario and 3.8% in Quebec had a moderating influence on the national average.

By far the biggest year-over-year increase on a municipal basis occurred in the census metropolitan area (CMA) of Saskatoon. This was largely due to the healthy economy of Saskatchewan and its recent population growth, the result of recent net gains in interprovincial migration from Alberta. Saskatoon contractors increased their prices by 38.6% between May 2006 and May 2007. In Regina, the year-over-year rise was 21.6%. These were the fastest advances for both CMAs in 26 years and continued a year-long trend of accelerating price increases.

Contractors in the CMA of Edmonton recorded a year-over-year gain of 37.0% in May, while prices in Calgary were up 22.0%. While still substantial, these price increases represented a 10-month low for Edmonton and a 16-month low for Calgary. After recording a dizzying year-over-year increase of 60.6% in August 2006, price advances in Calgary have since decelerated every month. Prices in Edmonton have slowed down after a high growth rate of 42.8% in November 2006.

The only other CMA to show an increase above the national average was Vancouver. Contractors there boosted their prices by 8.8% from May 2006, continuing a recent trend of accelerating price increases.

In Winnipeg, the year-over-year rise was 6.5%, its slowest since June 2004, in line with a recent trend in deceleration. Trailing all CMAs in the West was Victoria, where new housing prices were virtually stable (+0.3%).

Halifax recorded a year-over-year increase of 7.1%, its largest since 1985. St. John's is also starting to show a healthier market. Prices there rose 4.8%, the fastest gain in nine months, and above the Atlantic Provinces' average of 3.9%.

In Central Canada, homebuilders in Hamilton increased their prices by 6.1% from May 2006, the 11th consecutive month of growth above 5% for this CMA. Greater Sudbury and Thunder Bay followed with a 4.7% gain, mainly the result of increases in the wages of skilled trade labourers. A 4.3% rise in London was due to competitive factors and increases in land prices.

Increases in wage rates and material costs resulted in gains of 3.9% in Montréal and 3.5% in Québec. The only CMA to record a year-over-year decline was Windsor, where prices fell 1.0%, the eighth consecutive monthly decrease.

On a monthly basis, prices rose 10.9% between April and May in Saskatoon, 4.0% in Regina and 4.7% in Halifax. No CMA in Central Canada recorded increases of more than 1.0%. The only CMAs to show monthly declines were Windsor (-0.2%) and St. Catharines–Niagara (-0.1%).

Most Now Using the Internet to Find Suppliers - July 12, 2007

A recent study has determined that online sources like BCdex are now being highly used by the construction industry. The vast majority of industrial professionals are now using the Internet to find components and suppliers, according to a recent survey of Canadian engineers, technical buyers, and members of the scientific and manufacturing communities. These views were uncovered in the Canadian Industrial Engineering Trends Survey recently conducted by GlobalSpec, a leading specialized search engine, information services and e-publishing company for the engineering, industrial and technical communities.

Forty-five percent of respondents indicated that they spend more than 6 hours a week on the Internet for work purposes, according to the survey. And these professionals increasingly rely on the Internet for technical information: 88 percent of respondents indicated they use the Internet to find components and suppliers, while 84 percent go online to obtain product specifications and 67 percent use the Internet for research. Additionally, more than half of respondents indicated that product/component specifications are most valuable when searching for components.

Survey results also indicate the importance for manufacturers to have a strong online presence. Online media is first on the list for engineering, technical and industrial professionals searching for products and services. Instead of continuing to use paper directories companies now simply locate suppliers and manufacturers, professionals and contractors using an online directory.

While online media usage continues to grow, the use of traditional media, including printed trade magazines, is declining among Canadian professionals in the industrial sector. Thirty-seven percent of respondents indicated that their use of printed trade magazines has declined.

Highlights from the Canadian Industrial Engineering Trends Survey include:

• 88 percent have used the Internet to find components or suppliers
• 84 percent have used the Internet to obtain product specifications
• 75 percent spend at least 3 hours per week on the Internet for work
  purposes
  

Non-Res Construction Posts Another Record High - July 11, 2007

Heavy spending on office buildings in Alberta and Ontario pushed investment in non-residential building construction to another record high between April and June 2007. Second-quarter investment hit $9.9 billion, up 5.0% from the first quarter, and extended the upward trend in investment observed since the second quarter of 2003 according to a report released this morning by Statistics Canada. In constant dollars, investment in non-residential building construction rose 2.1% from the first quarter.

Nationally, all three components registered second-quarter gains. Investment in the commercial component led the way with a 6.3% increase to $5.9 billion. Investment in the institutional component rose 2.4% to $2.6 billion, while investment in the industrial component increased 4.3% to $1.5 billion.

Provincially, by far the biggest second-quarter increase (in dollars) occurred in Alberta, where investment rose 11.1% to $2.3 billion, the 16th straight quarterly gain. In Ontario, which was a distant second, investment increased 4.1% to $3.6 billion. In both provinces, investment rose in all three components.

Western Canada's dynamic economy continued to spark the non-residential sector. Other contributing factors included a strong labour market, high profits recorded by Canadian corporations, strong consumer demand for durable goods and declining vacancy rates in large urban centres.

Locally, 18 of the 34 census metropolitan areas (CMAs) recorded gains; the strongest was in Calgary where investment rose 17.2% to $1.1 billion. In contrast, investment in Halifax fell sharply as a result of a big decline in all three components.

Commercial: Robust office activity in Alberta and Ontario

Investment in commercial building construction increased for the 18th quarter in a row, in the wake of robust activity in office building construction sites in Alberta and Ontario.

Overall, eight provinces showed increases in commercial investment in the second quarter. The largest contributions (in dollars) occurred in Alberta, where investment rose 15.0% to $1.5 billion, and in Ontario, where it increased 3.5% to $2.1 billion. Both were all-time highs.

Among the 34 CMAs, 18 registered quarterly growth. Investment in Calgary increased 19.9%, the strongest investment growth, to a new record high of $806 million. In Nova Scotia, which experienced the largest decline, investment hit $80 million, down 14.1% after four consecutive quarterly gains.

Several economic factors were consistent with a fertile environment for the commercial sector. These included the vigorous retail sector and declining vacancy rates for office buildings in major Canadian urban centres, which provided added incentive for office building construction.

Institutional: Gains in health care facilities push investment to new record

Spending in the institutional component rebounded to a record high after two quarterly declines. Strong investments in health care facilities in eight provinces contributed to this gain.

At the provincial level, increases of 8.3% in Québec and 7.2% in Alberta contributed to the component's growth in the second quarter, the result of significant spending on the construction of health and day care facilities.

British Columbia recorded the most significant decline in dollars (-3.6% to $437 million), in the wake of a downturn in investment in health care facilities following a record high set in the previous quarter.

Among metropolitan areas, Calgary posted the highest growth in the second quarter, with investment rising 11.8% to $273 million. The gain was driven by substantial investments in health care facilities.

After a record high in the first quarter, Vancouver registered the most significant decline in dollars (-7.2%), with second-quarter institutional building investment falling to $201 million. Vancouver recorded a big drop in the construction of educational and health care facilities.

Of the 34 census metropolitan areas, 20 posted increases.

Industrial: Gains in manufacturing and utilities buildings

Strong spending on the construction of manufacturing plants and utilities buildings in nine provinces and two territories more than offset drops in the other industrial categories.

Investment in industrial building construction increased for the second straight quarter to $1.5 billion, up 4.3% from the first quarter.

Provincially, the largest contributions to the quarterly increase (in dollars) occurred in Ontario, where investment rose 10.2% to $540 million, and in British Columbia, where it was up 18.1% to $147 million.

Saskatchewan posted the largest decline as investment in maintenance buildings declined, after high spending in previous quarters.

Locally, 18 of the 34 CMAs recorded gains. The strongest (in dollars) was in Toronto, where investment rose 14.7% to $185 million, followed by Montréal, where it increased 18.4% to $129 million. The sharpest drop (-38.3%) occurred in Barrie, which had posted record investments in the first quarter.

In the second quarter, manufacturers continued to face increased production costs, stronger global competition and the appreciation of the Canadian dollar. On the other hand, the industrial capacity utilization rate among Canadian industries slightly increased in the first quarter of 2007.

According to the April 2007 Business Conditions Survey, manufacturers remained optimistic in their production outlooks as they planned to increase production in the second quarter.

Housing Starts Up in BC, Down in Canada - July 10, 2007

The seasonally adjusted annual rate of housing starts across Canada was 225,500 units in June, down from 235,200 units in May, according to Canada Mortgage and Housing Corporation (CMHC).

“Following a significant increase in May, the volatile multiple segment lost most of the ground it gained in June,” said Bob Dugan, Chief Economist at CMHC’s Market Analysis Centre. “Although housing starts will remain high in 2007, they are expected to resume a gradual decreasing trend. This is confirmed by the single detached component, which is slightly below the levels of the last two years.”

The seasonally adjusted annual rate of urban starts decreased 4.8 per cent to 192,600 in June compared to May. Urban singles were up 2.1 per cent to 92,200 units in June, while multiple starts decreased 10.4 per cent to 100,400 units.

In June, seasonally adjusted urban starts went up in three out of five regions. Urban starts registered an increase of 12.8 per cent in Quebec, 6.8 per cent in the Atlantic, and 3 per cent in British Columbia, while they decreased by 5.8 per cent in the Prairies and 19.4 per cent in Ontario. Urban single starts were up in all regions. Urban multiple starts declined only in the Prairies and Ontario, by 15.2 per cent and 35.8 per cent, respectively. These decreases offset the significant increase in urban multiple starts of 18.6 per cent registered in Quebec.

Rural starts were estimated at a seasonally adjusted annual rate of 32,900 units in June.

Actual starts, in rural and urban areas combined, were down an estimated 3.8 per cent in the first half of 2007 compared to the same period in 2006. Actual starts in urban areas alone were down an estimated 4.7 per cent. Actual single starts in urban areas were 7.5 per cent lower than they were a year earlier, while actual urban multiple starts edged down 2.1 per cent.

Bank of Canada Raises Interest Rate - July 10, 2007

As had been widely expected, the Bank of Canada today announced that it is raising its target for the overnight rate by one-quarter of one percentage point to 4 1/2 per cent. The operating band for the overnight rate is correspondingly increased, and the Bank Rate is now 4 3/4 per cent.

Economic growth and inflation in Canada in the first half of this year have been stronger than expected in the April Monetary Policy Report (MPR). Final domestic demand has remained the key driver of economic growth in Canada, bolstered by firm commodity prices. The Bank judges that the economy is now operating further above its production potential than was projected at the time of the April MPR. Both total CPI and core inflation have been higher than projected in April and are above the 2 per cent inflation target.

Longer-term interest rates have increased and the Canadian dollar has appreciated sharply, moving well above the trading range assumed in the last MPR.

The Canadian economy is now projected to grow by 2.5 per cent in 2007, somewhat stronger than was expected in April, and to grow somewhat more slowly in 2008 and 2009 than previously projected. In this new projection, higher interest rates across the yield curve and a higher assumed range for the Canadian dollar of 93 to 95.5 cents U.S. act to moderate growth in 2008 and 2009 to an average of about 2 1/2 per cent. This brings aggregate demand and supply in Canada back into balance in 2009.

Inflation is projected to be slightly higher and more persistent than in the April MPR. However, as excess demand diminishes, total CPI and core inflation should decline to 2 per cent by early 2009.

There are both upside and downside risks to the Bank's inflation projection. The main upside risk is that household demand in Canada could be stronger than expected. The main downside risks are related to the higher Canadian dollar and the ongoing adjustment in the U.S. housing sector. In the context of the Bank's new projection, these risks appear to be roughly balanced.

In line with this outlook, the Bank is raising the target for the overnight rate to 4 1/2 per cent. The Bank said that some modest further increase in the overnight rate may be required to bring inflation back to the target over the medium term.

Building Intentions are High in Western Canada - July 5, 2007

Construction sites in Western Canada will be humming this summer as the value of building permits, a leading indicator for construction activity, surged to its highest monthly level ever in May. Municipalities across Canada issued a total of $6.8 billion worth of permits, up 21.4% from April and 8.5% higher than the previous high set in October 2006. More than 15% of the total value in May came from only 15 large projects according to report released this morning by Statistics Canada..

The Calgary and Vancouver metropolitan areas were responsible for nearly 75% of the overall gain (in dollars) in May. Excluding these two areas, the total value of permits would have increased by only 7.0% instead of 21.4%. Gains in these two metropolitan areas pushed the total value of permits in Alberta and British Columbia to record highs. There was also strong growth in Manitoba, Saskatchewan and New Brunswick, thanks largely to construction intentions in the non-residential sector.

Non-residential permits surpassed the $3-billion mark for the first time in the wake of a big increase in commercial projects. Contractors took out a record $3.1 billion in permits for proposed construction projects, up 55.7% from April. This level was 18.5% higher than the previous record of $2.6 billion set in January.

On the residential side, municipalities issued $3.7 billion in permits, a 2.4% increase from April. The value of single-family permits increased, while multi-family permits slipped marginally.

Non-residential sector: Strong demand for new commercial space

The commercial component accounted for the lion's share of gains in the non-residential sector in May. Contractors took out permits worth a record $2.1 billion, a 59.2% increase from April.

This was by far the largest monthly figure on record for the commercial component, surpassing the previous record high of $1.6 billion set in October 2006. Several large projects for new office space in the Calgary and Vancouver areas accounted for the increase.

The dynamic commercial component (the largest of the three non-residential components) has been on an upward trend since October 2005. Furthermore, the average monthly value of commercial permits issued since the beginning of 2007 was 21.2% higher than in 2006.

In the institutional component, permits rebounded in May from a 26-month low in April. The value of institutional projects increased 76.6% to $616 million, the second highest level so far in 2007. Only the level in January was higher than the one reached in May.

School projects were the main factor behind the gain. Only two provinces – Newfoundland and Labrador and Alberta – recorded a decline in this component. The largest gains (in dollars) were in Ontario and British Columbia.

On the industrial side, the value of permits surged 21.3% in May to $419 million after a 19.4% decline in April. While eight provinces showed a gain in May, the increase was due mainly to construction projects for manufacturing plants in Ontario.

The value of industrial permits has been on a downward trend since the end of 2006.

The buoyant construction intentions in the non-residential sector since the beginning of 2007 are consistent with low office vacancy rates in several large centres, high profits recorded by Canadian corporations and a vigorous retail sector.

Housing sector: Slight decline in the value of multi-family building permits

The value of multi-family permits edged down 0.6% to roughly $1.4 billion in May. After an impressive gain in April, the number of units approved by municipalities fell 18.3% to 9,359. This came from a marked increase in the average value of multi-family permits.

Builders took out $2.3 billion in single-family permits, boosting their value by 4.3% over April to its highest level in four months. The number of approved units increased 2.8% to 9,481. Nevertheless, the increase failed to halt the downward trend in the number of single-family units that dates back to September 2006.

The demand for housing continues to remain strong owing to several factors, including strong employment, rises in disposable income, strong immigration and attractive financing options. Recent increases in mortgage rates and prices could, however, erode affordability. The value of residential permits increased in seven provinces.

The strongest growth (in dollars) in the value of residential permits occurred in British Columbia, thanks mostly to a jump in multi-family permits. The value of housing permits hit $905 million, up 30.9% from April and the highest level on record for the province. Quebec also recorded a sizeable increase.

In contrast, the value of residential permits in Alberta fell 21.9% from a record level in April, resulting in the second weakest showing in 11 months for residential permits in the province.

Metropolitan areas: Calgary and Vancouver dominate the scene

Among the 34 metropolitan areas, 20 recorded gains in residential permits, while 26 saw the value of their non-residential permits rise.

The demand for office space in downtown Calgary led this census metropolitan area to record a 160.6% jump in May, surpassing the $1-billion mark for the first time. Of this total, $856 million in intentions were in non-residential permits, which was more than eight times the value in April.

While very small in comparison, other important gains in non-residential permits (in dollars) were recorded in Hamilton, Victoria and Winnipeg.

In the residential sector, Vancouver led the pack, with residential permit values increasing 54.9% to $585 million and total permit values reaching $803 million, up 38.0% over April.

Ottawa–Gatineau (Quebec part), Hamilton and Barrie saw appreciable gains (in dollars) in residential permit values, but were eclipsed by Vancouver's increase.

Strong Housing Market Predicted - July 5, 2007

Canada's resale housing market finished the second quarter on strong and steady footing; surprising many by its astounding momentum. Healthy and robust conditions are expected to prevail through to year's end as all regions are poised to experience a rise in average house prices, with double-digit gains forecast for Edmonton, Calgary, Winnipeg and Regina, according to a report released today by Royal LePage Real Estate Services.

Echoing the growth and activity experienced in all Canadian markets in the first half of the year, the national average house price is forecast to rise by 9.5 per cent, passing the $300,000 mark for the first time, to $303,300. Home sale transactions are projected to rise by 8 per cent to 522,306 unit sales by the end of 2007.

"The momentum from the year's extraordinary start spilled into the second quarter, compounding typically busy spring market activity and stimulating solid price appreciations in almost all regions of the country. These conditions will certainly be an impetus characterizing Canada's real estate market through to year's end," said Phil Soper, president and chief executive officer, Royal LePage Real Estate Services. "As we move into the second half of the year, we continue to expect areas of aggressive price appreciation in the west, and modest, mid-single digit price increases in Central and Atlantic Canada."

Added Soper: "The most profound story in Canadian real estate today is the extraordinary interest that people across our country continue to have in buying and selling homes. The sheer number of homes trading hands this year has far exceeded consensus expectation. This market continues to show strength as we move into the second half of the year."

Vancouver experienced a traditionally strong spring market achieving record sales due to a steady increase in demand. The condominium sector experienced busy activity during the second quarter as buyers increasingly favoured the low-maintenance lifestyle that condominiums offer; however, supply could not satisfy demand. Construction of new condominium projects is limited as the city is approaching a build out, and reaching full building capacity within the downtown peninsula, placing a cap on future inventory. Strong consumer confidence, buoyed by economic prosperity in Vancouver is expected to stimulate strong housing market activity for the remainder of the year.

Victoria's housing market experienced a rise in average house prices during the second quarter, due to the combination of a hot job market, high consumer confidence and low inflation. Steady buyer demand was evident in all housing types; however, condominiums received the most notable attention. Although there has been an increase in inventory in the second quarter, multiple offer situations continue to characterize Victoria's market, with listing periods lasting an average of 30 days.

New to the stage of regional players exhibiting extreme home sales activity and searing house price increases is Saskatchewan. Record numbers of homes sold in both Regina and Saskatoon in the second quarter as intense demand was driven by a swell of in-migration of Saskatchewanians returning from expensive Alberta living. These frenetic conditions are expected to continue, albeit at a slightly more temperate pace. Energy rich Alberta's potent economy continued to attract in-migration; however, the runaway prices and activity that have characterized Calgary and Edmonton for the past eighteen months have started to ease and will continue to return to more manageable conditions as the year presses onwards. Most notable during the second quarter was the change in Calgary's inventory levels, which increased substantially as some sellers decided to cash in on their home equity. This increased supply, combined with the natural dampening effect that high prices have on demand, is leading to more balanced conditions and a stabilizing of average price appreciations.

Looking ahead, Central Canada should continue to enjoy balanced market conditions. More modest increases can be expected as we move into the traditionally slower second half of the year. The combination of healthy regional economies and job markets, population growth and the recognition that real estate is a sound investment, will continue to attract buyers and bolster demand for housing.

 

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