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January 2009

Current News

Federal Budget to Help Renovation Projects - January 28, 2009

Budget 2009 introduces a series of innovative measures timed to provide some much-needed uplift to residential renovation and resale activity, which has been hard hit in many regions across Canada. In times of financial uncertainty, investments in residential housing remain relatively “safe” portfolio assets, given their intrinsic value. Furthermore, in the broader economy, stronger residential investment provides economic stimulus to the construction and forestry industries, two other areas that have been hit hard by the U.S. downturn.

The centrepiece of Budget 2009’s residential investment mission is the new temporary Home Renovation Tax Credit (HRTC). The new HRTC will apply to eligible home renovation expenditures for work performed (or goods acquired) after January 27, 2009, and before February 1, 2010. A 15 per cent credit may be claimed on the portion of eligible expenditures exceeding $1,000 but not more than $10,000. Eligible homeowners will be entitled to a maximum tax credit of $1,350 (based on $10,000 in spending minus the first $1,000 that is not covered) for renovations carried out on one or more of their dwellings. HRTC outlays will total $500 million in 2008–09 and will rise to $2.5 billion in the following fiscal year.

In addition to the HRTC, Budget 2009 also implements:

• A permanent new, non-refundable First-Time Home Buyers’ Tax Credit, based on an amount of $5,000 for first-time home buyers who acquire a qualifying home after January 27, 2009. The credit will also be made available for certain acquisitions of a home by or for the benefit of an individual who is eligible for the disability tax credit. By fiscal year 2009–10, this initiative will provide $175 million in assistance to first-time home buyers.
• The introduction of the ecoENERGY Retrofit program, which will provide $300 million over two years to home and property owners by means of grants of up to $5,000 for making homes more energy efficient.
• A further increase of $15 million of permanent fiscal assistance to first-time home buyers will become available through the existing Home Buyers’ Plan (HBP). Enhancements to the HBP will allow first-time home buyers to withdraw up to a maximum of $25,000 from a registered retirement savings plan without having to pay tax on the withdrawal—an increase from the previous threshold of $20,000. These higher thresholds become effective in tax year 2009 and apply to any withdrawals made after January 27, 2009.
  

Housing Prices Continue to Fall - January 26, 2009

During the fourth quarter of 2008, Canada's real estate market posted a decline in both unit sales and house prices, according to a House Price Survey released today by Royal LePage Real Estate Services. The combination of a global economy in recession and shrinking employment figures did much to dampen consumer confidence, diminish home sales and cause house prices to drop.

Of the housing types surveyed, the average price of detached bungalows dipped by 4.8 per cent to $319,640, followed by standard condominiums, which decreased by 5.2 per cent to $233,230, year-over-year. The average price of standard two-storey properties fell by 6.3 per cent to $376,140, year-over-year.

While national average house prices decreased, price trends varied dramatically across regional real estate markets. Bolstered by strong local economies, the housing markets in Regina and St. John's posted double-digit year-over-year price appreciations, while the larger cities that have seen the greatest increase in prices this decade, including Toronto, Edmonton, Calgary and Vancouver, recorded declining house prices.

The tumultuous times that characterized the end of 2008 are not anticipated to define 2009. A recent poll commissioned by Royal LePage found that almost half (49%) of Canadians surveyed agree that the economic stimulus measures anticipated as part of tomorrow's Canadian federal budget announcement will have a positive impact on Canada's real estate market.

Political actions taking place south of the border are also likely to buoy the country's economic conditions, as the poll found that 82 per cent of Canadians agree that the inauguration of Barack Obama will have a positive impact on consumer confidence in Canada.

"The steady flow of universally dire news that Canadian consumers faced in the fourth quarter has gradually given way to a mixed diet of positive and negative economic indicators," said Phil Soper, president and chief executive, Royal LePage Real Estate Services. "This is clearly having some impact on consumer confidence as nearly half of all Canadians believe the steps the government is taking to stimulate the economy in tomorrow's budget will positively impact the country's real estate market."

Added Soper: "During the fourth quarter, housing markets go through a typical seasonal slowdown, and 2008 was no different. Earlier in 2008, as the country began to experience the anticipated adjustment in home sales, news that Canada would be hit hard by the rapidly expanding global recession caused home sales to grind to a halt in the last quarter. In many regions of the country, those that did decide to sell their homes were faced with a limited number of buyers who could be broadly classified as bargain hunters. What would have been a normal cyclical correction gave way to a sharp reset in housing values."

The inability for real estate activity to continue at the pace seen earlier in the decade comes as no surprise. While the large price increases, bidding wars and brief listing periods that characterized the 'boom' years were driven by solid economic fundamentals including real buyer demand and the ability and willingness to match rising listing prices, they were unsustainable in the long run, particularly if any of the factors that underpinned the economy weakened - exactly what occurred at the end of 2008.

Soper notes that as consumer confidence levels begin to creep upwards, the country's solid economic fundamentals should lead to a recovery in the housing market. "For many people, deciding to hold off on buying a home at the end of the year was an easy decision to make. With consumer confidence in tatters, many were reticent about making any large purchases. However, waiting on the sidelines during the normally slow winter market is one thing, sitting out the seasonally busy spring market is quite a different story. Activity levels should rise as the year progresses." said Soper.

Despite the global and Canadian economic downturn that characterized much of the fourth quarter of 2008, each province soldiered on in their way, and relied on the strength of their local economies to support their housing markets.

While lags in sales and prices were noted in many parts of the country, St. John's real estate market experienced phenomenal double-digit price increases and recorded Canada's highest price appreciation in the fourth quarter. Move-up buyers created an abundance of activity in the housing landscape as stable employment and growing incomes encouraged investment in more expensive properties. Despite disappointing employment news from the forestry sector, the recent announcement that Vale Inco NL is planning to construct a large new hydromet plant, helped to sustain the high level of confidence Newfoundlanders have in their province's economy. Mirroring St. John's healthy economic activity and fuelled by stable and diverse economies, many cities in Atlantic Canada saw healthy price appreciations at the year's end.

Looking west, Saskatchewan's local economy also weathered the storm, and led to price increases in both Regina and Saskatoon. Finally adjusting to the sharp rise in prices experienced over the past two years, residents of Saskatoon saw much smaller average price increases year-over-year in the fourth quarter. Regina, where recent price increases have been more modest, experienced double-digit house price gains. In both cities, favourable employment rates and consumer confidence levels, and growing population figures, were able to sustain upward trends within the province's real estate market during the last three months of 2008. Also insulated to a certain degree by its strong regional economy, Winnipeg's real estate market saw price gains during the fourth quarter. However, like Saskatoon, the large percentage increases that have characterized the Winnipeg market in recent years have given way to modest single digit price appreciations.

The cities in which real estate prices appreciated most quickly over the last few years, including Toronto, Calgary, Edmonton and Vancouver (-6.5%) trended lower as shown by year-over-year house price comparisons. Despite these cities' tight labour markets and reasonable buyer demand, the fact that house price growth overshot the rate of income growth during the boom periods, will result in a short-term price correction.

With relatively modest average housing values and a recent history of moderate price appreciation, residents in Montreal and Ottawa experienced only slight price corrections. While no region of the country is immune to the effects of the global recessions, the relative strength of these regions' diversified economies are expected to buffer the housing markets there when compared to the corrections happening in other large Canadian cities.

Looking ahead, Soper concluded, "The first quarter of 2008 was the final period of substantial price appreciation during the long expansionary cycle that Canadian housing enjoyed this decade. The first quarter of this year will pale in year-over-year comparison, although conditions should improve over the dismal final months of 2008. The balance of 2009 should see gradual and continuous improvements as the effects of low mortgage rates along with efforts by governments and central banks to get the economy back on its feet again begin to take hold."

Leading Indicators Continue Downward - January 22, 2009

The composite index fell by 0.6% in December, matching the drop in November after three months of accelerating declines. The losses remained concentrated in the stock market and housing. Overall, the four components that rose were evenly balanced with the four that decreased, while two were unchanged.

The stock market and the housing index posted losses of 7.9% and 4.5%, respectively, little changed from their drops the month before. However, these declines were largely driven by steep losses in the autumn.

A report issued by Statistics Canada says that consumer spending remained resilient, with increases for both furniture and appliances and other durable goods. However, preliminary data point to sharply lower auto sales in December, which is the largest part of spending on other durable goods.

The manufacturing indicators remained mixed. New orders were buoyed by continued strength for aerospace. However, only steep cuts to output kept the ratio of shipments to stocks from falling. These cuts to production were reflected in a shorter workweek and mounting layoffs at factories. The outlook for export demand remained bleak, as the US leading indicator fell 0.6%, the largest of 16 straight declines.

New Housing Prices Down in West - January 12, 2009

The New Housing Price Index increased year-over-year by 0.7% in November, a slower pace than the 1.5% advance recorded in October and the smallest 12-month increase recorded since August 1999 say figures from a report released this morning by Statistics Canada.

Prices decreased 0.3% between October and November, resulting in a New Housing Price Index of 157.6 (1997=100). This was the second consecutive monthly decrease at the Canada level.

The largest year-over-year increase was registered in St. John's (+25.6%). This city also registered the largest monthly increase (+3.4%) as builders reported higher costs for materials and labour.

Regina, which registered no change between October and November, posted the second highest 12-month increase (+21.7%) among surveyed cities.

In Saskatoon, prices roses 2.7% year-over-year, again confirming a trend of deceleration in this city. On a month-over-month basis, new housing prices decreased 0.5% as some builders in this city reported reduced prices charged by sub-contractors.

Significant 12-month declines were recorded in both Edmonton (-7.9%) and Calgary (-2.5%). The year-over-year decrease recorded in Edmonton was the largest since May 1985, while the drop in Calgary was the largest since November 1991. On a monthly basis, prices fell 0.3% in Edmonton and 1.1% in Calgary.

On the West Coast, Vancouver posted a year-over-year decline of 2.3%, the largest 12-month decrease since November 1999. Vancouver also recorded a decrease of 1.7% on a monthly basis. In Victoria, contractors' selling prices fell 2.4% year-over-year, and this city recorded a monthly decline of 0.9%. See Chart

Compared with November 2007, contractors' selling prices were 4.3% higher in Ottawa–Gatineau and 2.0% higher in Toronto and Oshawa.

In Québec, the 12-month growth rate was 5.4%, while in Montréal, prices increased 4.6%.

B.C. Building Intentions Fall by 29 Per Cent - January 9, 2009

Contractors took out $4.8 billion in building permits in November, down 11.8% from October, the result of widespread declines in both residential and non-residential sectors according to a report released this morning by Statistics Canada. It was the third double-digit decrease in four months.

Intentions fell in all provinces except Alberta, Saskatchewan and Nova Scotia. November's level, the lowest since February 2007, was 22.6% below last year's monthly average.

The value of non-residential permits fell 15.2% to $2.1 billion, the second consecutive monthly decrease. This drop occurred mainly as a result of declines in Quebec, Ontario and British Columbia.

In the residential sector, the value of building permits declined by 9.0% to $2.7 billion, a level not seen since January 2005. Intentions declined for both single- and multi-family permits. Provincially, Ontario and British Columbia registered the largest decreases in both sectors.

On a year-to-date basis, the total value of building permits issued by municipalities from January to November amounted to $65.7 billion, down 3.9% from the total for the first 11 months of 2007. The year-to-date value of permits in the residential sector decreased by 8.5%, while intentions in the non-residential sector were 3.3% higher.

Non-residential sector: Declines in all three components

Intentions in all three components of the non-residential sector declined for a second consecutive month.

In the commercial component, the value of permits fell 11.9% to $1.1 billion, the result mainly of lower demand for office building permits in British Columbia and Ontario.

In the institutional component, intentions fell by 18.8% to $597 million. The decrease came mostly from lower construction intentions in educational and medical projects in Ontario, British Columbia and Quebec. In contrast, Alberta recorded a 131.5% rise to $351 million, a third consecutive increase.

In the industrial component, contractors took out permits worth $316 million, down 19.6%, the second consecutive decline. The decrease resulted mostly from manufacturing buildings in Quebec and utility buildings in Ontario.

Residential sector: Intentions down for both single- and multi-family permits

The value of single-family permits decreased 8.0% to $1.8 billion, the fifth consecutive monthly retreat. All provinces, except Newfoundland and Labrador, Nova Scotia and New Brunswick, recorded a decline in the value of single-family permits in November.

The value of multiple-family permits fell below the $1-billion mark for the first time since February 2007. Municipalities issued $956 million worth of permits for multi-family dwellings in November, down 10.7%, the fourth consecutive monthly decline. Provincially, the largest declines (in dollars) occurred in Ontario and British Columbia. Alberta recorded a third increase in a row; however, its value in November was still 46.4% below the monthly average of 2007.

Municipalities approved 13,893 new dwellings in November, a 4.6% decline from October. Of these, 6,839 were multi-family units, down 2.2%, while 7,054 were single-family units, a 6.8% decline.

Permits down in most provinces

The value of building permits fell in seven provinces in November.

The most significant decreases occurred in Ontario, where the value of permits fell 16.6% to $1.5 billion. In Quebec, intentions declined 18.6% to $1.1 billion and, in British Columbia, they dropped 28.9% to $607 million. These decreases came from both the residential and non-residential sectors.

In contrast, Alberta, Saskatchewan and Nova Scotia reported increases in the total permit values, mainly the result of gains in the non-residential sector.

Metropolitan areas: Large decreases in Toronto, Vancouver and Ottawa
The value of permits fell in two-thirds (65%) of the 34 census metropolitan areas in November.

The largest declines occurred in Toronto, Vancouver and Ottawa. In Toronto, the decrease came from the residential sector, while in Ottawa, the non-residential sector registered a decline. Vancouver recorded decreases in both sectors.

In Calgary, permits rose for a second consecutive month, the result of higher multiple-family permits and gains in the institutional component.

The seasonally adjusted annual rate of housing starts was 177,300 units in December, down marginally from 178,000 units in November, according to Canada Mortgage and Housing Corporation (CMHC).

“Housing starts in December were almost unchanged compared to November,” said Bob Dugan, Chief Economist at CMHC’s Market Analysis Centre. “At an estimated 212,366 units, housing starts in 2008 breached the 200,000 unit mark for a seventh consecutive year.”

Pent-up housing demand which built up over the 1990s enabled Canadian housing starts to exceed long run demographic demand for the majority of this decade. This excess demand has gradually decreased and CMHC expects construction levels in 2009 to be more aligned with long run demographic demand.

The seasonally adjusted annual rate of urban starts decreased 0.5 per cent to 150,100 units in December. Urban multiple starts increased 3.2 per cent to 87,400 units, while urban single starts eased 5.1 per cent to 62,700 units in December.

December’s seasonally adjusted annual rate of urban starts moderated in three of the five regions in Canada. Urban starts declined 12.6 per cent to 36,700 units in Quebec, 6.3 per cent to 25,100 units in the Prairies, and 3.6 per cent to 8,100 units in the Atlantic Region. British Columbia urban starts rose 9.9 per cent to 19,900 units and Ontario urban starts climbed 8.6 per cent to 60,300 units.

Rural starts were estimated at a seasonally adjusted annual rate of 27,200 units in December.

Vancouver to have Biggest Drop in Home Prices - January 6, 2009

After experiencing a significant reset in 2008, a reaction to continuous dire news surrounding the health of the global economy combined with a cooling from the previous years' fervid activity levels, Canada's resale real estate market should see only modest price and unit sales corrections take place across the country during 2009. Both national average house prices and the number of homes sold is expected to decline this year, according to the Royal LePage 2009 Market Survey Forecast released today.

Nationally, average house prices are forecast to dip by 3.0 per cent from last year to $295,000, while transactions are projected to fall to 416,000 (-3.5 %) unit sales in 2009. In spite of this cooling trend on a national level, price and activity gains are anticipated in some provinces.

Emotional reaction to recent economic and political instability did much to dampen consumer confidence during the latter part of 2008, causing a marked slowdown in house sales activity. However, as a more rational understanding of the issues gains ground, together with a wide range of announced corrective measures, consumer confidence is anticipated to recover, prompting real estate activity to pick up once again in the latter half of 2009. Further, Canada in 2009 enjoys a stronger economic foundation than most countries and that should temper the housing market correction. The combination of low inflation, reasonable employment levels and improving housing affordability, driven in part by low mortgage rates, are anticipated to stimulate demand in the coming months.

"While Canada's housing market is anticipated to continue to move through a period of adjustment over the next six months, we should expect modestly lower home prices, not a U.S.-style collapse, which was brought on by a structural failure of the entire American credit system," said Phil Soper, president and chief executive of Royal LePage Real Estate Services. "Most consumers are not aware that nationally, Canadian housing market activity peaked in 2007 and has been adjusting lower since. We are well into this inevitable cyclical correction."

Added Soper: "While a grey cloud hangs over some markets, the sky is not falling. In recent years, Canada has been a difficult place to be a purchaser of real estate, particularly for first-time buyers. When real estate markets correct, inventory levels rise, providing buyers choices instead of frustrating bidding wars. In 2009, appropriately-priced homes will still sell for fair value."

The housing market is expected to perform quite differently from region to region across the country. In many mid-sized cities where home prices remain below the national average, such as Regina and Winnipeg, prices are expected to increase moderately through 2009, as home ownership remains particularly affordable. The most significant price decreases are forecast for Canada's most expensive city, Vancouver, which has experienced above average price increases for most of the decade. The correction is a natural cyclical reaction to an extended period of high price appreciation. Vancouver's fundamentals, including growing population figures and the positive economic spinoffs expected from the 2010 Olympics, remain very positive.

Observed Soper: "For several years, Vancouver experienced aggressive price run-ups in response to overwhelming levels of demand - conditions, which eventually reached a tipping point. While buyers will be acquiring properties for less in 2009, it is important to note that prices are coming down from all-time record levels." Royal LePage is forecasting a 9 per cent reduction in real estate prices for Vancouver in 2009.

Secondary Ontario markets heavily populated by people working in the manufacturing sectors are also anticipated to experience greater than average declines in house prices and activity levels in 2009. In contrast, real estate in Montreal and Ottawa is poised to remain stable, with average house prices relatively flat through 2009.

After moving through a period of correction that started in 2007, well before other regions in the country, both Calgary and Edmonton's housing markets are anticipated to return to a growth state later in 2009, characterized by stable average house prices and increased unit sales. Despite slowdowns and delay with some major energy projects, Alberta's economy remains one of the strongest in Canada.

Looking east, Halifax's real estate market is expected to experience very modest price appreciation through 2009. After experiencing strong price increases over the last year and a half, the market has hit its capacity for absorbing rising prices and activity levels. The city's diversified array of industries is expected to bolster the economy and continue to create solid employment opportunities, stabilizing home values.

Canadians have been confused and justifiably skeptical of the efforts of the worlds' central banks and governments to combat the global economic crisis. There is broad belief, however, that Canada's financial house is in better shape than many peer countries, particularly the U.S. While the federal and most provincial governments have been slow to implement economic stimulus packages, they enjoy broad public support in principle. Together with the actions taken by the Bank of Canada, the positive impact on consumer confidence stemming from infrastructure spending announcements and other stimulus programs is expected to be significant.

Concluded Soper: "We believe that the Canadian economy will struggle early in 2009, but that conditions will progress continually throughout the year. Improving credit markets, the stimulative impact from a weaker Canadian dollar, together with the implementation of large fiscal stimulus initiatives, set the stage for a return to growth in the second half of 2009."

Following are a few of the economic factors that had an impact on the 2009 Forecast

Global Economic Woes

No country is impervious to the current economic woes being felt around the world. The poor performance of the equity markets and the constant stream of pessimistic economic news had a very negative impact on housing activity in Canada in 2008. Consumer confidence is expected to slowly recover during 2009 as the impact of the many corrective actions introduced and announced takes root.

Tempered, but continued growth in emerging economies, particularly China, India and Brazil, should mitigate the downside risk to Canadian commodity exporters.

Foreclosure Figures in Canada

Foreclosure rates in Canada are expected to increase, but remain very limited, especially when compared to the U.S. experience, where a broad structural failure of the credit system occurred. Canada's relatively insignificant subprime market, and in turn, the low number of Canadians contractually committed to very risky mortgages, should result in a foreclosure rate of insufficient volume to impact house prices or transaction activity.

Employment Rates

Across the country, employment rates are expected to erode somewhat in 2009, but remain at long-term healthy levels. Some areas in Ontario, and to a lesser extent Quebec, that have high levels of manufacturing jobs, may experience greater than national average unemployment. Areas in Alberta tied to the energy sector may see short-term employment declines, but the province's tight overall labour market is expected to mitigate the downside.

Interest Rates

The Bank of Canada's overnight target-lending rate, already at very low levels, is expected to be reduced again early in 2009. This should bode well for home buyers in 2009 as loosening credit spreads allow banks to offer more aggressively priced mortgages.

 

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