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October 2008

Current News

Housing Starts to Moderate in 2009 - October 30, 2008

New home construction will moderate from historically high levels, to reach just under 178,000 units in 2009, a level that is consistent with demographic fundamentals, according to Canada Mortgage and Housing Corporation’s (CMHC) fourth quarter Housing Market Outlook, Canada Edition report.

“High employment levels, rising incomes and low mortgage rates have continued to provide a solid foundation for healthy housing markets this year,” said Bob Dugan, Chief Economist for CMHC. “Housing starts will moderate to 212,200 units in 2008 and 177,975 units in 2009.”

Existing home sales, as measured by the Multiple Listing Service (MLS®), which reached a record level of 523,701 sales in 2007, will moderate in 2008 to 452,225 units. In 2009, MLS® sales will move to 433,375 units. Despite a moderation in MLS® sales, demand for existing homes will remain strong by historical standards. With housing markets having become balanced across Canada, the rate of growth in the average MLS® price will moderate. Average prices will reach $306,500 in 2008 and $306,700 in 2009.

Construction Companies Going International - October 10, 2008

Over 90% of construction companies rank 'international mobility' - moving employees around the world for business needs - as important to their company's success, according to PricewaterhouseCoopers' (PwC) latest survey of construction companies around the world. All indications suggest that the trend for international mobility is set to increase significantly, as construction companies in developed markets currently suffer from slower economic conditions and as a result many are looking to emerging markets, where more robust economies, substantial oil revenues and major deficits in the existing infrastructure, spell opportunity.

Competing in an international market and winning contracts overseas means moving people around the globe - whether it be for a few weeks overseas to win a contract or for many years in order to deliver work. The survey, of 24 major construction companies in eleven countries, showed that nearly 70% of respondents say that short-term construction projects are the main factor driving international mobility initiatives. Furthermore it indicates that many construction companies recognize the importance of international mobility and of talent management to their business - but very few, if any, have developed a systematic approach which links the two.

"International mobility is very important to the success of construction companies, both today and in the future," says Michael Clifford, Leader of the PwC Canada Engineering and Construction practice. "But moving just one employee from one location to another can be a time consuming, costly and potentially risky business. There is seldom a sufficient level of experience or capability within companies to identify, let alone deal with the breadth and complexity of issues that arise. Our survey has highlighted that in planning international assignments there is insufficient understanding of the true cost, lack of a systematic approach and a lack of link up with the talent management agenda."

Many of the companies in the PwC survey operate in dozens of countries, and for most the number of overseas assignees runs into the hundreds, and a few companies are seeing their expat population number in the thousands. Most said they either have a written International Assignment Policy or are in the process of drafting one. Nearly all respondents report that complying with tax and regulatory issues is very important to their company and tax compliance for employer and employee topped their list of compliance issues.

Most companies surveyed cover the cost of home leave travel, living allowances, medical benefits and a relocation allowance for overseas workers but many respondents didn't see cost as one of their top priorities. Over a third don't actually estimate costs, and of those that do, many only use rough 'rule-of-thumb' estimates. A third of organizations surveyed said that international assignments impacted on their retention.

It is important to deal with the human issues around resettling, incentivizing and providing sufficient recognitions to employees working in a new environment. But only half of companies surveyed say they offer support for employees around cultural integration in the host country. Worryingly 32% of companies said they thought that an international assignment significantly increases the chances of an individual leaving the company.

Clifford notes, "Companies will need to increase their agility in order to staff key projects appropriately. They will also need to ensure that out of sight does not mean out of mind when it comes to top talent. And the task of managing an expanding global mobile workforce will not be an easy one, as many companies have already found."

Housing Starts May be at Peak - October 8, 2008

The seasonally adjusted annual rate of housing starts was 217,600 units in September, up slightly from 217,400 units in August, according to Canada Mortgage and Housing Corporation (CMHC).

“Housing starts remained at a high level in September, with construction activity again staying above the 200,000 unit threshold.” said Bob Dugan, Chief Economist at CMHC’s Market Analysis Centre. “Higher starts of multiple family homes were behind the rise in new home construction activity in September.”

The seasonally adjusted annual rate of urban starts rose 0.1 per cent in September, compared to August. Urban multiples rose in September by 5.5 per cent to 122,500 units. Urban single starts decreased 8.1 per cent to 70,000 units in September compared to August. However, Statistics Canada recently reported a 13.5% reduction in building permit applications, an indication that housing starts may have reached their peak.

September’s seasonally adjusted annual rate of urban starts went up or remained unchanged in all regions of Canada, except Ontario, where housing starts decreased by 6.6 per cent to 80,900 units. Urban starts increased to 9,500 units in Atlantic Canada, 29,000 units in the Prairies, and 33,600 units in British Columbia. In the Quebec region, starts remained stable at 39,500 units. Multiple urban starts increased in all regions in September, with the exception of Ontario, where they decreased by 1.9 per cent.

Rural starts were estimated at a seasonally adjusted annual rate of 25,100 units in September.

For the first nine months of 2008, actual starts in rural and urban areas combined were down an estimated 5.7 per cent, compared to the same period last year. Year-to-date actual starts in urban areas have decreased by an estimated 0.8 per cent over the same period in 2007. Actual urban single starts for the January to September period of this year were 15.6 per cent lower than they were a year earlier, while urban multiple starts were up by 12.2 per cent over the same period.

BC Housing Market Slipping - October 8, 2008

According to the latest provincial economic outlook released today by RBC, weakening trends in key sectors of the domestic economy will slow British Columbia's economic growth to 1.2 per cent in 2008 and allow for just a moderate re-acceleration to 2.1 per cent in 2009.

"If the housing market is a gauge of the economic situation, then conditions in B.C. appear to be slipping fast," said Craig Wright, senior vice-president and chief economist, RBC. "While this slippage in the housing sector is not symptomatic of a generalized weakening across the province's other key economic indicators, it is consistent with a less rosy economic picture for the next several months."

Housing resale activity has plunged, reaching its lowest levels since 2001. At the same time, a surge in supply has significantly dampened house prices, which have even started to decline in Vancouver. Looking at the recent low sales-to-listing ratio, prices could well deteriorate further. Since its peak late last year, new home construction has also trended lower and is not expected to improve quickly as the market absorbs newly completed units.

Unless the U.S. housing environment stages a surprising turnaround, the deep slump in the forest products sector will persist through next year. As a result, external trade will remain under intense downward pressure. Exports are down modestly year-to-date on a nominal basis but the decline in volume is likely much steeper given the price increases of several key commodities like lumber, pulp, newsprint and coal. Job creation has virtually stalled since the spring and consumer spending is showing signs of weakness with growth in retail sales slowing significantly.

Nonetheless, British Columbia's economy continues to be firmly supported by investment spending both in the private and public sectors. In particular, development of natural gas opportunities and infrastructure building ahead of the 2010 Olympic Winter Games will remain catalysts for growth going into 2009.

The outlook for provinces has generally darkened as a result of the recent dramatic turn in the year-long financial market crisis. The U.S. economy now appears to be in recession with Europe, the U.K. and Japan also sinking fast. While Canada is in better position with its financial sector less heavily impaired, overall growth will be substantially weaker than previously anticipated.

Among the provinces, Saskatchewan will lead the way this year and next in terms of economic growth, with Manitoba closely behind. The Atlantic region is expected to display continued resilience and should sustain a moderate pace of expansion for the most part. Conditions in the most western part of the country are on a deteriorating path. Eroding housing situations and rapidly slowing growth in consumer spending have prompted downward revisions to the forecasts for British Columbia and Alberta. With weak external trade continuing to exert a toll, cracks have appeared in the domestic foundations of Ontario and Quebec. Ontario will likely see its growth evaporate.

Building Intentions Down 13.5 Per Cent - October 6, 2008

As a result of declines in both the residential and non-residential sectors, the value of building permits fell 13.5% to $5.6 billion in August, a level similar to the one observed in March 2008. A Statistics Canada report issued today indicated that, on a year-to-date basis, permits were down 0.7% from the same period last year.

In the residential sector, the value of building permits declined by 9.3% to $3.4 billion. This decline was mainly due to a 17.5% drop in multi-family dwellings, coupled with a 3.8% decline in single-family dwellings. New Brunswick (+42.5%), Saskatchewan (+2.6%) and Prince Edward Island (+1.5%) were the only provinces with increases in the residential sector.

After double-digit increases in April and May, the value of non-residential permits declined for the second time in three months. In August, the value in the non-residential sector fell 19.3% to $2.2 billion as a result of declines in all three components (industrial, commercial, institutional).

Residential: Decline in single and multiple dwelling permits

After increasing 4.0% in July, the value of residential permits declined by 9.3% in August. Together, Quebec and Ontario accounted for almost two-thirds of the decline in the residential sector. Both provinces experienced significant drops in multi-family dwellings, after reporting double-digit increases in July. The 3.8% decline in single-family dwellings came mainly from a decrease in Quebec.

Municipalities approved 16,334 new dwellings in August, down 16.2%. The number of multiple-family dwelling units approved decreased by 26.1% to 8,269. The number of single-family dwelling units declined to 8,065, the fifth decrease in six months.

Non-residential: Decrease in all components

In August, the largest drop in the non-residential sector occurred in the institutional component. After double-digit increases from April to June, the value of institutional permits declined for a second consecutive month. A decline in educational buildings permits in Ontario was the main factor behind the 39.1% decrease in institutional permits in August.

Construction intentions for commercial buildings declined 9.6% to $1.3 billion, a third consecutive decline. Three-quarters of the decrease originated in Alberta, where the decline was principally a result of lower intentions for office buildings. Quebec also posted declines in several commercial categories.

Continuing its volatile pattern, the value of industrial permits decreased 16.6% to $414 million, after a 24.8% increase in July. The decline was the result of a lower value of permits for utility and transportation buildings in Quebec and mining buildings in Saskatchewan.

Permits down in most provinces

The value of building permits decreased in seven provinces in August. The most significant drops occurred in Ontario (-11.5% to $2.1 billion) and Alberta (-19.1% to $916 million). Both provinces experienced drops in multi-family dwellings, in addition to decreases in the non-residential sector. The values of dwellings also decreased in Quebec (-12.6% to $1.2 billion) and Saskatchewan (-45.9% to $153 million).

New Brunswick and Prince Edward Island saw increases in both the residential and non-residential sectors. Newfoundland and Labrador also reported an overall increase as a result of gains in the non-residential sector.

Metropolitan areas: Declines in Toronto and Calgary

Of the 34 census metropolitan areas, 20 recorded declines in the value of building permits in August.

The largest decreases occurred in Toronto and Calgary, with drops mainly in multi-family dwellings and non-residential buildings. Ottawa–Gatineau and Kitchener experienced declines in both sectors.

In contrast, Vancouver and Hamilton recorded increases as a result of advances for both single and multiple-family dwellings.

 

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