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March 2008

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BC Housing Still Most Unaffordable - March 14, 2008

British Columbia's affordability conditions deteriorated across every housing segment at the end of 2007, and the province remained the least affordable province in Canada to purchase a home, according to the latest housing report released today by RBC Economics.

"The housing market in B.C. sits at its most stressed point on record in terms of affordability conditions. Two-storey homes have carried the brunt of the deterioration as the hot Vancouver market remains in deeply-stressed territory," said Derek Holt, assistant chief economist, RBC. "However, we believe B.C.'s housing market is poised for some affordability relief in 2008 as cooler price gains and lower interest rates push through."

The RBC Affordability measure for British Columbia, which captures the proportion of pretax household income needed to service the costs of owning a home, deteriorated across all housing segments as the detached bungalow moved to 68.5 per cent, the standard townhouse to 52 per cent, the standard condo to 37 per cent, and the standard two-story home to 74 per cent.

There are several key fundamentals indicating a gradual re-balancing of the province's housing market. The sales-to-new listings ratio is declining and five-year fixed mortgage rates are expected to drift approximately 75 basis points lower than current levels.

Although house price growth picked up at the end of 2007, the province's weakening economy is expected to dampen demand for existing homes and push house price gains to approximately seven per cent this year, down from 12 per cent in 2007.

In Vancouver, the pace of rising housing prices continues to pressure affordability conditions across the market. The sharp erosion in the city's housing conditions will start to filter through the resale market in 2008, slowing the pace of housing activity. The new home market continues to be driven by sales in condos and townhouses - which soared by more than 45 per cent in February. Despite the surge, housing starts should begin to moderate in 2008. A general weakening in Vancouver's economy will affect job and income growth, and as a result, will also weigh heavily on the housing sector going forward.

"Two-storey homes are driving most of the affordability erosion in Vancouver. The average selling price is close to $650,000, which is 35 per cent above the average price for a comparable home in Toronto," noted Holt. The report also presents a comparison of Canadian and U.S. household finances, and shows that Americans are still modestly richer, but much more heavily leveraged and further in debt with less liquidity. That, in turn, makes them more vulnerable to ongoing credit market turmoil and risks towards house prices than Canadians. In fact, the sharp depreciation in the U.S. dollar over the past six years has made Canadians relatively richer over time, by raising the value of what their wealth will buy in world markets compared to that of their American counterparts.

The report also looked at mortgage carrying costs relative to incomes for a broader sampling of cities across the country, including Victoria. For these smaller cities, RBC has used a narrower measure of housing affordability that only takes mortgage payments relative to income into account.

RBC's Affordability measure for a detached bungalow for Canada's largest cities is as follows: Vancouver 74 per cent, Toronto 47 per cent, Calgary 42 per cent, Montreal 37 per cent and Ottawa 32 per cent.

The Housing Affordability measure, which RBC has compiled since 1985, is based on the costs of owning a detached bungalow, a reasonable property benchmark for the housing market. Alternative housing types are also presented including a standard two-storey home, a standard townhouse and a standard condo. The higher the reading, the more costly it is to afford a home. For example, an Affordability reading of 50 per cent means that homeownership costs, including mortgage payments, utilities and property taxes, take up 50 per cent of a typical household's monthly pre-tax income.

Housing Prices Still Rising - March 11, 2008

The cost of new housing accelerated for the second month in a row in January, the result of a strengthening housing market in the Atlantic and Prairie provinces.

Nationally, contractors' selling prices rose 6.5% between January 2007 and January 2008, a faster pace than the year-over-year increase of 6.2% in December according to a report released this morning by Statistics Canada. These back-to-back increases followed 16 months in which the gains in new housing prices had been decelerating.

On a monthly basis, prices rose 0.6% between December and January, resulting in a New Housing Price Index of 157.6 (1997=100).

Here, on the West Coast, the 12-month increase for Vancouver was 6.5%, while in Victoria, the year-over-year increase in contractors' selling prices was 1.6%, unchanged from December.

Looking at the rest of the country, prices again rose at the fastest pace in Saskatoon, which led the nation with an annual price increase of 51.7%. On a month-over-month basis, housing prices rose 4.5% between December and January. This increase was due to a number of factors, including increased costs for material and labour, as well as strong market conditions and increased demand for land.

In Regina, the year-over-year increase was 25.9%, unchanged from December. Prices were also unchanged in January from December 2007.

In Calgary, prices rose 5.6% between January 2007 and January 2008, slightly slower than the 6.0% year-over-year increase the month before. On a monthly basis, new housing prices in Calgary were up 0.3%. Some builders reported increased costs for material and labour, although these were moderated by other builders who reduced their prices to stimulate sales. Some developers increased their lot prices to be more in line with current market conditions.

In Edmonton, the year-over-year increase was 19.0%, while prices fell 0.5% from December 2007 due to slower market conditions.

In the Atlantic region, buyers in Halifax saw prices rise 11.4% from January 2007. This was due to higher costs for materials and labour, increased demand and higher lot prices. Homebuyers in St. John's saw a 9.1% gain on a 12-month basis. The principal factors were higher material and labour costs.

Windsor recorded year-over-year deflation for the 16th month straight, with prices falling 0.9% from January 2007. Contractors' selling prices for January rose 0.2% from the previous month. Elsewhere in Ontario, contractors' selling prices were 4.2% higher than in January 2007 in Toronto, and 2.0% higher in Ottawa–Gatineau.

In Montréal, the 12-month growth rate rose to 4.6%, while in Québec, prices increased 6.3%. Increases in both cities were due to a competitive market and higher material and labour costs.

Housing Boom Finishing with a Bang - March 10, 2008

The seasonally adjusted annual rate of housing starts was 256,900 units in February, up from 222,700 units in January, according to Canada Mortgage and Housing Corporation (CMHC).

“New home construction in February was boosted by the significant rise in multiple-family starts,” said Bob Dugan, Chief Economist at CMHC’s Market Analysis Centre. “The robust results achieved this month are mainly attributed to increased condominium starts, which reflect strong condominium sales over the past year or two. Despite this sizeable growth in February, we continue to expect that the trend in housing starts will decrease gradually between now and the end of 2008.”

In February the seasonally adjusted annual rate of urban starts increased 18.0 per cent to 223,700 units compared to January. Urban multiples jumped 30.3 per cent to 140,700 units in February, while singles rose 1.8 per cent to 83,000 units.

The seasonally adjusted annual rate of urban starts increased in four of Canada’s five regions in February. Urban starts registered an increase of 45.2 per cent in British Columbia, 26.2 per cent in Quebec, 16.9 per cent in the Atlantic region and 16.4 per cent in Ontario. The Prairies bucked the trend and registered a decline of 9.6 per cent in February. Urban multiple starts were up in all regions except in the Atlantic and the Prairies. Urban singles were up in all regions except British Columbia and the Prairies.

Rural starts were estimated at a seasonally adjusted annual rate of 33,200 units in February.

Actual starts, in rural and urban areas combined, were up an estimated 8.1 per cent in the first two months of 2008 compared to the same period in 2007. In urban areas, actual total starts increased by an estimated 10.4 per cent year-to-date. Actual urban single starts from January to February 2008 were down 11.0 per cent compared to the same period in 2007, while multiple starts grew by approximately 25.9 per cent over the same period.

BC Building Permits Fall by 22 Per Cent - March 6, 2008

The value of building permits in January fell below the $6-billion mark for the first time since April 2007. An increase in the non-residential sector was insufficient to compensate for fewer construction intentions in the residential area. According to a report released this morning by Statistics Canada, municipalities issued $5.9 billion worth of building permits, down 2.9% from the December 2007 value of $6.0 billion. This was a third consecutive monthly decline.

Despite the recent declines, building sites should remain busy in the first part of 2008 since construction intentions were strong in 2007. Building permits are a leading indicator for construction activity.

In the residential sector, the value of building permits dropped by 13.9% to $3.3 billion. This was fuelled by a 26.9% drop in multi-family housing. Intentions also decreased in the single-family component (-5.4%).

After two consecutive monthly decreases, the value of non-residential permits increased by 16.4% to $2.5 billion. January's gain was due to increases in institutional, commercial and industrial permits.

Important movement in permits in Ontario

Provincially, the largest gain (in dollars) occurred in Ontario, where municipalities approved $2.4 billion worth of permits in January. A record high was reached in the value of non-residential permits (+68.8% to $1.4 billion). The Ontario non-residential components (industrial, commercial and institutional) all had very high values in January. These increases more than offset a 29.1% drop in residential permits, the largest among all provinces.

Alberta also posted a significant gain (+4.2% to $1.2 billion) in the total value of permits, thanks to growth coming from the industrial and the institutional components.

Quebec experienced, to a lesser extent, a state of affairs similar to Ontario. A decline in residential permits (-2.7%) was offset by an increase in non-residential sector (+14.0%) leading the total value of permits to $989 million in January, up 1.9% from December.

The total value of building permits fell in four provinces. With significant drops in both residential and non-residential components, the largest decrease in dollars occurred in British Columbia, where the total value of permits dropped 22.4% to $815 million, the lowest level since April 2006.

Important retreats also occurred in Saskatchewan (-44.4%) and Newfoundland and Labrador (-54.6%). In both provinces, the drops followed exceptional results in the non-residential sector in December.

Housing sector: The demand for multi-family units drops

The value of permits for multi-family dwellings fell by 26.9% in January to $1.1 billion, the lowest amount since February 2007. The number of multiple-family units approved decreased by 17.6% to 8,216.

Single-family permits decreased by 5.4% to $2.2 billion. The corresponding number of units declined by 5.5%.

Both single- and multi-family units approved have been on a downward trend since the summer of 2007.

Strength in employment, growth in disposable income, dynamic economy in Western Canada and tight apartment vacancy rates in certain centres are factors that could affect positively the demand for housing. On the other hand, the impact of price increases on housing affordability and the signs of a weakening US economy and their spillover effects in Canada could erode the demand.

All non-residential components are on the rise

The value of permits in the institutional component jumped 26.6% in January to $701 million. This gain followed two consecutive monthly declines. Large projects for medical buildings in Ontario and Alberta were behind this marked increase.

The value of commercial permits gained 9.0% in January to $1.4 billion, thanks to several large projects for office buildings in Ontario. In 2007, this category played a key role in the strong showing of the commercial component.

Having reached a 10-month low in December, the value of industrial permits rebounded with a 28.1% gain in January as the value of permits totalled $423 million. Construction projects for manufacturing buildings in Ontario and for utility buildings in Alberta led to this gain.

Despite the strong results in January, the value of permits in the commercial and industrial components has been on a downward trend since the summer of 2007. In contrast, the institutional component has been maintaining its upward trend since February 2007.

The non-residential sector continued to be positively affected by low office vacancy rates, the vigorous retail sector and strong corporate profits. Furthermore, business and government intend to increase their spending in non-residential construction in 2008, according to the latest Private and Public Investment Survey released on February 27, 2008.

Metropolitan areas: Sharp decline in Vancouver

The total value of permits declined in 15 out of the 34 metropolitan areas in January. The largest decline occurred in Vancouver as $427 million worth of permits were issued, the second lowest level since April 2006 (the lowest being in September 2007 when there was a municipal strike in the city of Vancouver). Marked declines occurred in both residential and non-residential sectors. Barrie and Saskatoon also showed substantial declines in January, after record levels in December 2007.

In contrast, significant increases occurred in Edmonton, London and Montréal due largely to projects in the non-residential sector.

In Toronto, a tremendous gain in the non-residential sector (+143.2%) was largely offset by a sharp decline in residential construction intentions.

More Energy Efficient Homes are the Future - March 5, 2008

Increasing concern over climate change has people thinking about ways to reduce greenhouse gas emissions according to a recent release from the Institute for Research in Construction. One recent event where the subject was front and centre was a forum called "Getting to zero: Defining the path to Net Zero Energy Home Construction." First held in Ottawa and second in Toronto in Spring 2007, the forum examined this emerging trend in home construction and where it might fit in residential housing. Attendees included Canadian and U.S. builders, developers, government officials, utilities representatives and building product manufacturers.

A Net Zero Energy Home (NZEH) is a home that uses existing renewable energy sources (including passive and active solar, solar photovoltaic and geothermal technology) and proven energy conservation techniques to supply at least as much power to the electrical grid as it consumes. In other words, the net amount of electrical energy purchased for the home over a year is zero.

Panel discussions at the forum examined Canadian perspectives on NZEH, technical considerations in NZEH deployment and design, and how the NZEH concept is gaining momentum in Ontario. New and emerging approaches to NZEH, such as "net zero cost", "net zero electricity" and "zero utility peak demand" were also a hot topic. Zero utility peak demand, in particular, attracted attention because it is achievable in cold climates, such as those found in Ontario. It stipulates that the house produces energy equal to the amount supplied by a utility during peak times.

Although the NZEH approach is common in many countries such as Japan and Germany, it is just beginning to catch on in Canada and the U.S. According to Forum participants, there are still significant barriers to be overcome, including difficulties in financing NZEH construction, a lack of incentives to convert conventional homes to NZEHs, a lack of unified building labels and guidelines, and difficulties in moving NZEHs on the re-sale market.

To learn more about NZEH and about the forums, see the Net Zero Energy Home Coalition Web site.

Is the Building Boom Winding Down - March 4, 2008

According to RBC Royal Bank's 15th Annual Homeownership Survey, the pace of homebuying in British Columbia is set to slow as fewer B.C. residents intend to buy a home in the next two years. The poll found that 26 per cent of B.C. residents are either "very likely" or "somewhat likely" to buy a home, down eight per cent from 2007.

The number of British Columbians who would "buy now" in light of elevated house prices and unstable economic conditions, has also slipped to 47 per cent, from 59 per cent in 2007. Nevertheless, a strong majority of BC residents (85 per cent) still believe that buying a house or condominium is a "good" or "very good" investment.

"In 2008, we may see a shift in homebuying activity as purchase intentions appear to be softening and an increased number of potential buyers say it makes more sense to delay the purchase a home until next year," said Kevin Lutz, regional manager, Mortgage Specialists, RBC Royal Bank. "This change in sentiment can likely be attributed to a number of factors such as the rise in home prices and concerns about the economy, yet British Columbians continue to see great value in homeownership."

Among those looking to purchase a home in the next two years, 85 per cent said they will likely buy a resale home and 62 per cent said they would want a detached house. While 41 per cent said they plan on buying a home larger than their current residence, the number of those looking for a smaller home (29 per cent) is greater in B.C. than in any other region across the country.

On average, B.C. homeowners approximate the value of their home at $341,401, well above the national average of $239,560. They also estimate that the value of their home has increased by an average of 28 per cent over the last two years, making it among the highest percentage increases in the country.

According to the poll, 17 per cent of British Columbians who plan to buy a home in the next two years say they will choose a variable rate mortgage, up from 14 per cent last year. However, fixed rate mortgages remain the preferred choice with 44 per cent of respondents planning to lock in their rate. Thirty-nine per cent said they plan to choose a combination of both fixed and variable.

Residential Construction Investment Up in 2007 - March 3, 2008

The total value of residential construction investment for 2007 reached $88.7 billion, an increase of 8.5% compared with 2006. All components of residential construction (new housing, renovation and acquisition costs) and all provinces and territories saw gains. According to a resport released this morning by Statistics Canada, in constant dollars, the increase in the overall residential construction investments in 2007 was 2.3%.

Among provinces, the biggest increases (in dollars) occurred in Alberta (+18.9% to $14.8 billion) and in Quebec (+8.0% to $19.1 billion). In percentage terms, Saskatchewan led the rest with an increase of 37.5%.

New housing investment represented the largest contribution in dollars, posting an increase of 8.5% to $44.2 billion. This increase stemmed mainly from investments in single-family homes, which rose 7.2% to $27.4 billion, and in apartment and condominium construction, which increased 9.7% to $10.3 billion.

The favourable job situation, growth in disposable income, attractive financing options and strength of the economy in Western Canada continued to support the demand for housing. The rise in the price of houses also played an important role in the increase in investments. The New Housing Price Index (house-only component) increased by 7.4% in 2007 compared with the previous year.

In 2007, construction spending in constant dollars fell 2.2% for new single-family housing and remained unchanged for apartments and condominiums.

In 2007, renovations increased 9.5% to $36.8 billion, which represented 41.5% of all residential construction investments. Acquisition costs represented 8.6% of total investments, or $7.7 billion, up 4.1% compared with 2006.

For the fourth quarter of 2007, construction investment increased 10.6% compared with the same quarter in 2006 to $23.1 billion. The increase came from new housing, renovations and acquisition costs.

Spending on new housing construction reached $11.9 billion, up 12.4% compared with the same quarter in 2006. This increase stemmed mainly from investments in new single-family housing construction, which came to $7.3 billion, an increase of 10.5% compared with the fourth quarter of 2006. Apartment construction rose 14.0% to $2.9 billion.

The increase in new housing investment was largely attributable to the increase in the average cost of new units. In constant dollars, spending on new single-family housing and apartment or condominium construction were up 4.2% and 4.4% respectively compared to the fourth quarter of 2006.

Renovation spending grew 8.3% compared with the fourth quarter of 2006 to $9.2 billion. Acquisition costs rose 10.3% to $2.0 billion.

Gains were achieved in all provinces and territories with the exception of Quebec and the Yukon. The biggest increase (in dollars) was in Alberta (+19.9% to $4.1 billion), largely due to the increased spending on new housing construction.

British Columbia came next with a 19.8% increase in investment to $3.9 billion. Ontario also had a strong 6.4% increase to $8.4 billion. Renovations in Quebec fell 4.7%, which contributed to a slight decrease in total investment for the province.

 

 

 

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