MONTREAL, Nov. 6 /CNW Telbec/ - Canada Mortgage and Housing Corporation
(CMHC) presented its annual Housing Outlook Conference today to about
1,000 industry professionals. Under the theme "Expanding Your Horizons," the
speakers addressed the state of the real estate market in the Montréal area
and across the province and presented an overview of current and future
conditions in the Canadian housing sector.
The strength observed in the Montréal area, on both the existing and new
home markets, will have surprised many in 2007. While the resale market is
headed for a record 42,800 transactions(1), up by 10 per cent over 2006,
housing starts will also jump up by 10 per cent to 25,000 units. For 2008,
CMHC forecasts a similar volume of resales and a level of 23,500 housing
starts, down slightly from 2007.
Existing condominiums remain the most affordable type of property, with
an expected average price of $212,000 in 2007, followed by single-family
homes, at $251,000, and plexes (properties with 2 to 5 units), at $330,000.
The current tightening of the market will continue to favour sellers and
should lead to price increases varying between 5 and 6 per cent in 2008,
depending on the type of property.
While, last year, certain geographic sectors, particularly downtown
Montréal, were showing signs of overbuilding in the condominium segment, the
situation improved in 2007 thanks to a renewed demand, which helped reduce the
duration of supply by half (from 12 to 6 months) in the Montréal metropolitan
area, even as 8,500 new units were being built. The anticipated 6-per-cent
increase in condominium starts in 2007 will be followed by a decrease of
2 per cent in 2008, when 8,300 units should be started.
"The vigorous economy and favourable borrowing conditions are largely
responsible for the strength of the housing market, as are the increase in
household disposable income and the introduction of more flexible mortgage
financing options," explained Sandra Girard, Senior Market Analyst at CMHC.
"It is possible that demand is being moved up, which means that we would be
cutting into future demand."
The increase in household income and the decrease in mortgage rates to
all-time lows in recent years facilitated access to homeownership, as
53.4 per cent Montréal area households owned their own homes in 2006, compared
to 50.2 per cent in 2001. The strong gains in the homeownership rates were
recorded, on the one hand, for smaller households and, on the other hand, for
young families (under 35 years) and households aged 75 years or older.
Place of speculators in the market
The hypothesis of a speculative market is excluded, as the role of
speculators is marginal. While, at the height of the wave, in 2003, the rapid
resale rates, that is, the percentages of properties resold within less than
12 months, stood at 4.3 per cent for plexes and at 2.6 per cent for
single-family houses, the latest data revealed a slowdown in this type of
activity, as the rates had fallen to 3.0 per cent and 2.2 per cent,
respectively, in 2006.
And, as rapid resale rates were decreasing, the average holding period of
single-family homes on the Island of Montréal was increasing slightly, rising
from 3.5 to 3.7 years between 2004 and 2007.
Manor homes: a buyer's market
There were 917 sales of existing homes for over $500,000 in the third
quarter, with two thirds having taken place on the Island of Montréal. Off the
Island, manor home markets heavily favour buyers, with listings-to-sales
ratios varying between 22 and 38 to 1.
Households' capacity to pay
The steady growth in property prices in recent years caused the ratio
between the selling price and household after-tax income on the Montréal
market to rise from 2.9 in 2001 to 4.4 in 2005. This ratio, while seemingly
high, remains below the levels recorded in Vancouver and Toronto, where the
ratios stood at 7.7 and 5.3, respectively, in 2005.
However, the increase in property prices in recent years will have been
largely offset by the low mortgage rates. The affordability ratio, as
determined by the ratio between the mortgage payment and household after-tax
income, will reach 34.6 per cent in 2007, on the rise since 2001
(24.1 per cent), but still below the peak of 43.5 per cent registered in 1990.
"The narrowing of the gap between the rise in incomes and the increase in
mortgage carrying costs, along with the potential effect of demand being moved
up, suggests that the market may be getting close to a turnaround, which could
be around 2009 or 2010," said Sandra Girard.
Rental housing and retirement home vacancy rates trending up
Demand will not be sufficient to absorb the anticipated 6,500 new rental
housing units to be built in 2007, or 17 per cent more than in 2006, and the
dwellings vacated by households having accessed homeownership. As a result,
the vacancy rate in the Montréal area will rise to 3.2 per cent by the end of
2007. This increase in the vacancy rate should limit rental housing
construction in 2008 (-14 per cent), when this rate will reach 3.7 per cent.
Like the traditional rental housing segment, the retirement home market
will also see an upward trend in its vacancy rate, which will rise from
4.7 per cent in 2006 to 6.2 per cent in 2007 and then to 7.5 per cent in 2008.
The vacancy rate hike did not limit construction in this market segment in
2007. By the end of the third quarter, starts of this type had already
exceeded 2,700 units, compared to the level of 2,401 starts registered for the
whole year in 2006.
Quebec provincial market: solid fundamentals and much more
According to CMHC, job and income growth largely contributed to the
strong housing demand across Quebec in 2007. However, according to Kevin
Hughes, Regional Economist at CMHC, the recent economic conditions are not
sufficient, by themselves, to explain the rebound observed on the housing
market across Quebec during the year:
"The more flexible borrowing context and the growing interest in the
retirement home segment must also be taken into account. While it is still too
early to rigorously analyze the effect of the financial context on demand, we
believe that it also had an impact. As well, the greater supply of retirement
homes presents its own challenges to analysts, as vacancy rates continue to
climb and the province is headed for a period of weaker demand in this niche.
In addition, the fact that births jumped by 7.9 per cent to 82,000 in 2006
should also support a strong housing demand, as the arrival of a first child
often triggers young households' decision to access homeownership."
For 2008, CMHC forecasts a certain decline in demand. "We believe that
job growth will be less robust in 2008, on account of the weaker export
sector, which will affect housing demand. For multi-family housing, the
current retirement housing stock should limit construction in this market
segment. Finally, based on the Statistics Canada Census data on households, we
estimate that demand has now more than caught up and, as a result, that the
current pace of construction is not sustainable," added Kevin Hughes.
More than 52,000 housing units will therefore be started across the
province in 2007, and 48,000 more, the following year. On the resale market,
81,000 transactions will be registered in 2007, a level that will be
maintained in 2008.
Outside the major centres, residential construction is dynamic and will
remain so over the next few years. It is interesting to note that, in the
third quarter of 2007, the levels of activity recorded in smaller cities, like
Saint-Jean-sur-Richelieu (900 units) and Drummondville (781), exceeded the
volumes registered in more populous agglomerations such as
Trois-Rivières (731) and Saguenay (556). Greater affordability, economic
prosperity and the construction of retirement homes in these smaller centres
partly account for these levels of activity.
Nationally, the results are similar to the numbers for the province of
Quebec, where the levels of activity in the housing sector were significant.
MLS(R) sales will set a new record in 2007, with an expected 521,000
transactions, and then fall slightly to 500,000 units in 2008. Rising mortgage
carrying costs will cause demand for homeowner housing to edge lower and the
existing home market to move toward more balanced conditions, which will slow
the rate of increase in home prices to 10.0 per cent in 2007 and then to
4.2 per cent the following year.
Housing starts will surpass the 200,000-unit mark for the seventh year in
a row, reaching 225,700 units in 2007 and 214,300 in 2008.
Canada Mortgage and Housing Corporation (CMHC) has been Canada's national
housing agency for more than 60 years. CMHC is committed to helping Canadians
access a wide choice of quality, affordable homes, while making vibrant,
healthy communities and cities a reality across the country. For more
information, visit www.cmhc.ca or call 1-800-668-2642.
(1) Transactions registered in the Multiple Listing Service(R) (MLS(R))
system of the Greater Montréal Real Estate Board.
For further information:
For further information: or interviews: Julie Cohen, Communications,
CMHC, (514) 283-3679