Toronto Real Estate Blog

By Lori Mcleod Globe and Mail

Canadian real estate prices blasted through what is usually a holiday slowdown period at warp speed, but the big gains are unlikely to continue this year, according at a recent real estate report.

While home sale prices typically moderate in the fourth quarter, last year the average price of a detached bungalow increased by 11.6% to $337,555 from $302,497 the year before. The price of an average two-storey property rose 11.3% to $399,738, and a condo unit 11.7% to $240,395.

“The fourth quarter [of] 2007 was surprisingly strong, with unseasonably high price increases and unwavering demand,” said Phil Soper, president and chief executive officer of RLP, in a statement.

“As we move into the new year, activity levels are expected to wane from the frantic pace that many regions of the country experienced in 2007.”

While home sale prices typically moderate in the fourth quarter, last year the average price of a detached bungalow increased by 11.6% to $337,555 from $302,497 the year before.

Average prices are still expected to rise, but at a much more moderate pace, Mr. Soper added.

Much of the fourth quarter’s strength was due to natural resources, which drove growth in markets such as Regina and Saskatoon, the report said. The market with the biggest year-over-year home price gain in the quarter was Saskatoon, where the price of a bungalow rose by 55.2% to $292,500 and a two-storey home by 56.7% to $321,250. The highest priced homes in the country were in Vancouver, where the average two-storey house would set you back $895,000, compared with $803,500 the year before.

The only market to experience a price decline was the condo market in Fredericton, where the price of a unit fell by $500 to $126,000. Price growth was also notably slower in Calgary, where double digit gains appear to be a thing of the past. The price of a detached bungalow in Calgary rose 5.2% to $429,889, compared with $408,833 in 2006.

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Housing starts reach their second highest level in nearly two decades despite cooling in December

Housing starts in 2007 are estimated at 229,600, surpassing 2006 starts, and reaching their second highest level in nearly two decades. However, the seasonally adjusted annual rate of housing starts in December decreased to 187,500 units from November’s 233,300 units, according to Canada Mortgage and Housing Corporation (CMHC).

“Growth in 2007 housing starts was driven by low mortgage rates, solid employment, income growth and a high level of consumer confidence, said Bob Dugan, Chief Economist at CMHC’s Market Analysis Centre. “Even with the weakness in residential construction in December, new home starts are estimated at 229,600 units in 2007, surpassing 2006 levels.”

After two strong months in October and November, the volatile multiples segment and single-detached starts fell in December mainly due to harsh winter weather. Also, the seasonally adjusted annual rate of urban starts decreased 23.2% to 151,600 units in December, compared to November. Urban singles were down 12.6% to 85,600 units in December, while multiple starts decreased 33.7% to 66,000 units.

In December, the seasonally adjusted annual rate of urban starts increased in two of Canada’s five regions. Urban starts registered an increase of 3.4% in Quebec and 1.2% in the Atlantic region. British Columbia, Ontario and the Prairies all recorded a decline in activity for December (-36.7%, -33.1%, and -17.1% respectively). Urban single starts were down in all regions except the Atlantic and British Columbia, while only Quebec saw an increase in urban multiple starts.

Rural starts were estimated at a seasonally adjusted annual rate of 35,900 units in December.

For the year 2007, actual starts, in rural and urban areas combined, increased by an estimated 1.0% compared to 2006. In urban areas, actual total starts in 2007 decreased by an estimated 0.6%. Actual urban single starts for 2007 were down 3.5% compared to 2006, while multiple starts grew an estimated 2.1% in 2007 compared to 2006.

Housing starts are expected to remain strong in 2008, but are forecast to decrease to 214,300 units.

As Canada’s national housing agency, CMHC draws on over 60 years of experience to help Canadians access a variety of quality, environmentally sustainable, and affordable homes – homes that will continue to create vibrant and healthy communities and cities across the country.

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Economist sees ‘more significant downturn’ in the cards, but industry players remain optimistic

By Lori Mcleod and Roma Luciw – Globe and Mail

Housing starts froze up at the end of last year, leading a prominent Bay Street economist to warn of a sharper-than-expected downturn in the Canadian real estate market, but others said one month’s data provide a poor indicator of what’s in store for 2008.

Ted Carmichael raised concerns that the bustling real estate market has reached a turning point after data indicated that in the final, wintry month of 2007, starts dropped to their lowest level in more than five years.

“The sharp decline in December housing starts suggests that a more significant downturn in real estate activity may be in the cards for 2008,” said Mr. Carmichael, chief economist at J.P. Morgan Securities Canada Inc.

His previous view, released in October, had been that the current housing starts cycle likely peaked in the third quarter of last year, but the anticipated downturn in real estate activity in 2008 would be “modest.”

Despite the weak month, starts for all of last year came in at their highest level since 2004. Whether they are weak or strong, housing starts are not as accurate a measure of the future health of the residential real estate market as sales are, said George Carras, president of industry research firm RealNet Canada Inc.

“There’s a very big difference between a sale and a start, with sales being the leading indicator of economic activity. Before a start, you must have a sale,” Mr. Carras said.

Monthly housing start numbers are also becoming much more volatile because of the larger number of multiresidential developments being built, Mr. Carras said.

Housing starts are registered by Canada Mortgage and Housing Corp. (CMHC) after a project has been partly developed and most of the units are sold.

In Vancouver, 2007 has marked the fourth year of strong activity since the “dumps” the market was in previously, said Peter Simpson, chief executive officer of the Greater Vancouver Home Builders Association.

Despite strong sales and prices, starts have been slowed somewhat by the city’s competitive labour market, he said. “There are only so many workers to build these homes from single-family to concrete towers. So it has in some respects slowed the starts.”

The seasonally adjusted annual rate of new-home starts slowed to 187,500 units in December from 233,300 units in November, CMHC said in a news release yesterday. Economists had forecast 222,000 starts.

The December housing starts numbers, however, did close out another banner year for home construction. For the year, starts totalled 229,600 units, up 1% from the 2006 tally, CMHC said. The federal agency forecast that starts will decrease to 214,300 units in 2008.

“Growth in 2007 housing starts was driven by low mortgage rates, solid employment, income growth and a high level of consumer confidence,” Bob Dugan, the agency’s chief economist, said in the release.

Canadian real estate starts defied repeated predictions of a slowdown last year, even as the U.S. housing market went through a dismal and protracted slump that is slowing that country’s economic expansion. The continuing collapse of the U.S. subprime mortgage market is weighing on growth prospects this year.

Economists believe that Canada’s real estate market will not follow the U.S. market and fall into a deep slump.

“With weather exerting a negative influence on building activity in December, the sharp drop in housing starts shouldn’t be seen as the prelude to a U.S.-style meltdown in the coming year,” said Robert Hogue, senior economist at BMO Nesbitt Burns Inc.

Nonetheless, he expects the strong momentum of the past several years will “slow moderately as rising economic uncertainty throws some sand in the housing engine.”

CMHC said yesterday that the “harsh winter weather” was responsible for the slower building activity in December.

Work on urban single-family homes in cities fell 12.6% to a seasonally adjusted annual rate of 85,600 units last month while starts for apartments and condominiums, which tend to be volatile, tumbled 33.7% to 66,000 units.

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By Roma Luciw – Globe and Mail

The value of November building permits tumbled by five times as much as economists had been expecting Thursday, the second weak housing report in as many days that suggests the long-awaited slowdown in the Canadian real estate market has arrived.

“The Canadian building industry appears to be in the first stages of losing some momentum after a blow-out year in 2007,” said Doug Porter, an economist with BMO Capital Markets, in a report.

Statistics Canada said Thursday that municipalities issued $6-billion worth of building permits in November, down 9.9% from October. Economists had forecast a smaller 2% drop.

Both residential and office construction intentions declined, with non-residential construction projects sagging 17.5% as a rise in industrial intentions was offset by a 32.5% decline in permits for offices, retail outlets and warehouses.

Statistics Canada said Thursday that municipalities issued $6-billion worth of building permits in November, down 9.9% from October. Economists had forecast a 2% drop.

Residential permits dropped 5% on a 15.2% drop in the value of multi-family dwellings like condominiums and townhouses. Permits for single-family housing edged 1.8% higher.

Millan Mulraine, an economics strategist with TD Securities, said in a report that the “dramatic” drop in November permits “offers some credence to the view that the Canadian real estate market may have hit a soft spot in the fourth-quarter of 2007.”

In his mind, it also validates the 19.6% fall in housing starts reported on Wednesday. New home starts slowed to 187,500 units in December from 233,300 units in November, Canada Mortgage and Housing Corp. said Wednesday. Economists had forecast 222,000 starts.

The Canadian dollar extended its two-day slide, falling to 98.80 (U.S.) cents from 99.03 cents Wednesday.

In a separate report released Thursday, Statscan said that prices for new homes climbed 0.5% after rising 0.1% in October. Contractors’ selling prices rose 6.1% from November, 2006 to November, 2007.

Canada’s real estate market defied repeated calls for a slowdown last year, even as the U.S. housing market went through a dismal and protracted slump. Although no one is calling for a U.S.-style meltdown in Canada, the recent weakness has economists talking about how much Canada’s real estate market will taper off in 2008.

Mr. Mulraine emphasized in the report that the Canadian housing market is in “reasonable” shape, with “an expectation for some moderate adjustments during 2008.”

Mr. Porter agreed that the easing in the Canadian building industry is a “far cry” from the deepening housing descent south of the border. However, he noted in the report that the drop in building permits arrived on the heels of yesterday’s December housing starts and last week’s 12.8 point plunge in the Ivey Purchasing Managers Index.

“Is this trio of steep sags in admittedly third-tier economic indicators an ominous warning for the Canadian economy? In two words… probably not,” Mr. Porter wrote. “While there is plenty to be concerned about on the outlook — primarily the softening U.S. economy — this sudden run of weak data in very volatile series is likely noise.”

He noted that although building permits fell sharply in November, they stayed above $6-billion for a seventh straight month. For the first 11 months of last year, permits are up 12.4% the previous year.

Stewart Hall, a market strategist with HSBC Securities (Canada), noted in a report that multi-family units rose sharply in October, so part of November’s drop-off could be seen as “moderation from very robust levels” down to levels still indicative of robust builder interest.

“The mistake would be to bind today’s report on permits to yesterday’s soft housing starts number and try to spin it into the makings of a U.S. styled real estate story,” Mr. Hall wrote.

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The melt-down of the U.S. real estate market has left many homebuyers wondering if and how it may affect the housing market in Canada. But market analysts say the problems in the U.S. will have little impact on Canadian real estate.

For example, according to a recent house price survey report, Canada’s resale housing market remained on solid ground during the third quarter as high consumer confidence, strong employment rates and stable interest rates led to robust buyer demand and a rise in real estate prices.

Much like the Canadian dollar, the Canadian housing market is charting its own course, quite independent from the United States and its currency and housing climate. The strength of the Canadian dollar, and the fact that the country is adjusting well to its value, will continue to keep interest rates at their existing low-to-moderate levels, boding well for buyers looking to enter the condos-for-sale/propertysearch.htm” title=”toronto real estate”>real estate market.

Statistics Canada also recently reported that the home ownership rate stands at its highest on record. “With the combination of the cost of borrowing money remaining relatively low, the availability of longer mortgage amortization periods, and the fact that Canada’s population continues to grow, it is no surprise that more and more people are entering the real estate market,” the report states.

Fundamental differences

The Emerging Trends in Real Estate Report 2008, recently released by U.S.-based Urban Land Institute and PricewaterhouseCoopers, suggests the condos-for-sale/propertysearch.htm” title=”toronto real estate”>real estate market will remain upbeat in Canada over the coming year. The report is based on interviews with real estate executives in both Canada and the U.S. Some of the reasons why Canada is not expected to experience the same downturn as the U.S. in its real estate markets according to the report include:

* Canada benefits from a simpler economy and a more conservative investment environment than the United States, avoiding the consequences of lax underwriting and speculative building.

* In Canada, institution-dominated markets appear to be avoiding “transaction mania,” but real estate values have reached record highs and a strong economy has accelerated tenant demand for space.

* Canadian federal surpluses have given consumers more confidence which has led to increased spending on homes, retail goods and business expansion.

* Canada is naturally rich in areas such as energy and resources and benefits from huge global demand, which fuels both the economy and demand for all forms of real estate.

* Housing prices continue to skyrocket toward new highs without overdoing mortgage financing.

* Canadian metropolitan areas boast below 5% vacancies, and rents have room to push higher. Rental apartments are doing well in major cities with high immigration flows.

* Canada’s economy continues to be healthy and the soaring dollar brings benefits to importers and any company looking to make capital purchases, which are almost always priced in U.S. dollars.

No sub-prime lending market

Finally, another big difference between the U.S. and Canada has to do with mortgage loans. Unlike the U.S., the Canadian housing market has not been artificially driven by bad lending practices. In the U.S. lenders with liquid assets or investment money were making loans to almost anyone who asked. When U.S. housing prices started to slide and interest rates began to rise, many borrowers ended up in trouble and defaulted which in turn, initiated the credit crunch. However, by June 2007, only 5 per cent of mortgages in Canada were sub-prime as compared to more than 21 per cent of U.S. mortgages. As well, all mortgages in Canada are insured which is not the case in the U.S.

Canada’s long-term fundamentals are solid. Canada has a growing population, our energy and commodities are in high demand, and job creation is strong. All of these attributes seem to have created a buffer shielding Canada from some of the problems in the U.S. real estate market.

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Contact the Jeffrey Team for more information – 416-388-1960