City census shows Calgary’s housing glut highest in decades, but it may not last

Despite a steady wave of indicators that suggest Calgary’s economy is on the mend after a bruising recession, data released Thursday show the city is dealing with a glut of housing that hasn’t been so big in three decades, perhaps longer.In its latest census, the city reported that more than 23,600 housing units are vacant, up by 2,700 over last year’s levels, pushing the vacancy rate to 4.76 per cent, its highest peak in recent memory.
Census figures dating back to 1989 show the number and rate of vacancies have never been so high in the nearly 30-year period.
Economist Trevor Tombe said the high volumes of empty housing appear to be a lingering effect of the recent recession, but he said the glut will not be permanent.

Tombe said other economic indicators, such as employment, oil production and exports, continue to suggest Alberta’s recession ended last fall. The province has also attracted new residents, especially from other countries.

The latest civic census shows more people moved to Calgary in the last year than left in the past year. While the boost of 1,000 people was relatively low, it was still a reversal from last year, when the city reported an out-migration of 6,500 people.

“The bottom in the recession is behind us,” Tombe said.
Housing vacancies in Calgary continue to be concentrated in apartments following a surge in boom-time construction that flooded the market with new units when the recession hit.
According to the census, there were 10,600 vacant apartments in April, accounting for 45 per cent of all empty dwellings, followed by 5,000 vacant single-family homes.
Renters have been reaping the rewards of the glut, which has given them much more housing to choose from, while landlords have offered lower rates, rent holidays and other perks to attract tenants.
Bob Dhillon, chief executive of the western Canadian landlord Mainstreet Equities, said high rental vacancies have been driven in part by a drop of in-migration and an increase of tenants leaving their apartments to either live with friends or family, or to move out of the city.

A third factor, he said, was a spike in condo construction with many of the new units being converted to rentals.

Still, Dhillon believes the economy is on the rebound.

Mainstreet reported Thursday that its vacancy rate for properties it has owned for a year or longer was nearly 10 per cent in the last quarter, down from 12 per cent a year ago.

But its rental revenues per each apartment fell by five per cent, to $865, in the three months ending June 30, due to rental incentives, bad debts from tenants and acquisitions of properties with high vacancies.

Dhillon said rents in Alberta appeared to have hit a bottom, though he expects incentives, such as rent holidays, will likely continue for the rest of the year and perhaps into 2018.

The CEO believes an oversupply of rental apartments will eventually be taken off the market as Alberta’s economy adds more jobs and more people move to the city. He said an in-migration of people from other countries is good for his business, given that they typically rent.

“Every indicator is showing that things have bottomed and bounced off the bottom,” Dhillon said. “The challenge is, how long will it take to absorb the vacant units?”

– Calgary Herald

Canadian housing starts trend upwards in April

New housing construction increased in Canada, with seasonally adjusted data exceeding 200,000 units for five months in a row. The increase in the trend was mainly due to apartment construction in British Columbia and Québec, which was partly offset by a decline in Ontario’s multiple starts.

Monthly highlights

  • Apartment construction continues to drive the residential market in Halifax. April saw over 400 additional multiple starts breaking ground, bringing year-to-date multiples starts growth to 169% compared to last year. Demand is being driven in part by the ageing population as downsizing baby boomers are increasingly selling their homes and moving into rental units.
  • Even though the rate of housing starts in the Province of Québec was down in April, the total for the first four months was up by about 30% in the province’s urban centres. This result was mainly due to the significant construction of apartments, especially rental units, in the Montréal and Québec areas. As well, single-detached home starts have been strong so far in 2017, thanks in part to tightening resale market conditions.
  • Despite the slight decline registered in April, residential construction in the Gatineau area showed positive results for the first four months of the year. The gains were particularly strong in the rental segment, with construction getting under way on many seniors’ housing units. Overall, starts were supported by an increase in housing demand and a decrease in the number of unsold units on the new and existing home markets.
  • The trend in housing starts in Toronto remained stable in April, as slight increases in low-rise homes were offset by some declines in apartment starts. Overall, new home construction this year has been building momentum as both new single-detached and townhome starts trended higher to reach a nine-year high in April. Tight conditions in the resale market continue to cause demand to spill over into the new home market.
  • In London, April 2017 single-detached starts were much higher than in April 2016 and the ten year average for April. The gap between house prices in Toronto and London has widened significantly, making new single-detached homes in London that much more appealing to retirees from Toronto who wish to sell their home but not downsize.
  • In Winnipeg, a decrease in inventories in the new home market and balanced resale market conditions are allowing builders to increase production. Actual housing starts in April increased year-over-year for the fourth consecutive month, boosting year-to-date starts to their highest levels since 1987.
  • The trend measure for housing starts in the Kelowna CMA surged upwards again in April, due to an increase in both single-detached and multi-unit construction. In particular, a number of large apartment rental projects are now underway as builders continue to respond to the low vacancies that have characterized Kelowna’s rental market for the past two years.
  • Housing starts in Metro Vancouver trended higher for the first time in four months, led by multiple-family residential construction. Builders are responding to demand in the market as eight in ten townhouses and all apartments were sold at completion during the last two months.

CMHC uses the trend measure as a complement to the monthly SAAR of housing starts to account for considerable swings in monthly estimates and obtain a more complete picture of Canada’s housing market. In some situations analyzing only SAAR data can be misleading, as they are largely driven by the multi-unit segment of the market which can vary significantly from one month to the next.

-CMHC

Life After Oil Makes Real Estate Canada’s New Economic Crutch

Two things happened last week that were a reminder of just how vital real estate has become to Canada’s economy.

On Friday, Statistics Canada released gross domestic product data that showed February was a banner month for sectors linked to housing. The real estate industry, residential construction, financial and legal services generated a combined 0.5 percent increase in output, the biggest one-month gain since 2014. Without those, the overall economy would have contracted slightly in February.

A day earlier, the Ontario government released a budget that projects land transfer taxes will surpass C$3 billion ($2 billion) in the current fiscal year, from C$1.8 billion three years ago. For the province, it’s the difference between a balanced budget and a deficit.

Measures of housing’s contribution to the economy are imprecise, but estimates largely put the direct contribution in excess of 20 percent.

It’s much more than that once you add all the indirect effects, with benefits spread widely from lawyer fees to government revenue and increased retail purchases through so-called wealth effects as rising home equity values prompt households to ramp up consumption. The big worry is that Canada has moved from a reliance on oil to a reliance on real estate.

The influence of housing on the economy is so pervasive that it won’t take much of a slowdown to act as a major drag on the economy, said Mark Chandler, head of fixed-income research at RBC Capital Markets in Toronto.

“You don’t need a collapse in house prices, you don’t need housing starts to be cut in half for weaker real estate sector to have a significant effect on GDP and incomes,” Chandler said. RBC’s ballpark estimate is that a 10 percent decline in national home prices would knock a full percentage point off growth.

A Toronto Dominion Bank report from 2015 found the housing wealth effect has been responsible for about one-fifth of all growth in consumption since 2001.

“A lot of the strength we have seen in consumption is housing related,” said Brian DePratto, the economist who wrote the 2015 report. If you strip out the direct and indirect impact from housing on the economy, “you are talking about a much lower trend pace of growth.”

Record Loans

It’s hard to believe, but there was a time not long ago when Canada’s banks lent more to businesses than home owners. It was the norm in fact until the early-1990s, when mortgage loans surpassed business lending for the first time. Residential mortgages today make up about 52 percent of all chartered bank loans, versus 21 percent for business lending.

Still, that portion of business lending is up from a record low of 19 percent in 2012, suggesting that as home valuations become stretched and as mortgage and capital regulations tighten, banks are increasingly looking to companies for lending growth.

A closer look, however, reveals that much of the new business lending is in fact real estate related. Bank of Canada figures show 14 percent of all private business loans from chartered banks are now bound for so-called real estate operator industries, the biggest share in the history of data back to 1981.

The C$27.4 billion in private loans to the sector, which represents companies that own and manage real estate assets, exceeds the combined lending to the manufacturing and oil and gas sectors combined. That’s on top of the C$15 billion loaned to developers, more than double levels in 2010.

The chartered banks are also lending to real estate operators at the fastest rate on record — C$10 billion since the start of 2014.

The pattern makes sense. Profit margins in real estate rental, leasing, and property management industries were around 34 percent in 2015, Statistics Canada data show, and banks want to lend to profitable businesses. Yet, it also means lenders are increasingly exposed to the industry on multiple fronts.

Housing market retains momentum in April

City-wide prices hold steady as labour market improves

Calgary’s housing market continued to show signs of stability in April. With improvements in the labour market and a balanced detached sector, city-wide benchmark prices reached $439,600 in April, similar to the previous month, but 0.90 per cent below last year’s levels.

“More jobs means less uncertainty for people who are sitting on the fence,” said CREB® president David P. Brown. “There also tends to be fewer people who need to sell when employment improves, and that can prevent inventory gains and further price reductions in the market. It’s a good scenario for sellers who are entering a spring market that’s in better shape than anything we’ve seen in recent years.”

While adjustments are still occurring in the apartment condominium sector, the detached segment of the market is improving across all price segments.

“Detached product has not faced the same supply pressure as the apartment sector,” said CREB® chief economist Ann-Marie Lurie. “Detached supply from new construction didn’t surpass previous highs. That helped prevent steeper price adjustments in the detached sector when demand eased.”

The relationship between sales and inventory will be a key driver for pricing in the months ahead. Total transactions improved to 1,917 units in April, while inventories totaled 5,495 units, pushing months of supply below three for the second consecutive month.

With sales up and overall market inventory down, months of supply has already pulled back from elevated levels recorded over the past two years. While activity continues to vary by location and product type, more balanced conditions will help to support overall price stability.

“Improvements in the employment situation were necessary to prevent further declines in the housing sector,” said Lurie. “However, economic recovery is still expected to be slow, impacting the pace and quality of job growth. Based on current expectations this should translate into a more prolonged period of recovery in the housing market.”

-CREB

House prices increase slightly in Calgary, continue to soar in Toronto: Royal LePage

House prices in Calgary experienced a small increase in the first quarter of the year, according to the Royal LePage house price survey released Tuesday.

The aggregate price of a home in the city rose 0.6 per cent year-over-year to $461,635.

“This is projected to be a recovery year; oil prices have stabilized, and people are starting to feel more confident in the economy. This newfound confidence has led to a rising volume of sales and resulting lack of inventory, making it increasingly clear that people are becoming more comfortable with the real estate market in Calgary,” Corinne Lyall, broker and owner at Royal LePage Benchmark said in a news release.

“Despite the economic challenges Calgary experienced in recent years, it has always been a place where people continue to be optimistic.”

The median price of a two-storey home in Calgary remained relatively flat, increasing 0.1 per cent to $500,190  the first quarter of 2017. The median price of a bungalow increased  2.4 per cent to $479,543, while the price of a condo slid 0.4 per cent to $301,794.

The report says Canada’s two largest real estate markets continued their divergence in the first quarter of the year.

The aggregate price of a home in the Greater Toronto Area rose by an “unprecedented” 20 per cent across all housing types to $759,241 in the first three months of 2017.

In the Greater Vancouver area, the price of a home rose 12.3 per cent year-over-year to $1,179,482.

Royal LePage CEO Phil Soper says the housing correction in Vancouver began seven months ago, around the time that the B.C. government introduced a 15 per cent tax on foreign nationals buying real estate in the city.

Sales volumes then plunged and prices slowed their torrid upwards trajectory.

But just in the past month, sales in the Vancouver area have leapt forward by close to 50 per cent on a month-over-month basis, says Soper — better than the seasonal average.

“An unfortunate side effect of heavy-handed regulatory intervention is that we risk market whiplash,” Soper said in a statement.

“In the coming weeks, it is possible that six months of pent-up demand will be unleashed on the market, sending prices sharply upward again; this when the pre-intervention 2016 trend was a natural market slowdown based on eroding affordability.”

Across Canada, the aggregate price of a home grew 12.6 per cent year-over-year to $574,575 during the first quarter, Royal LePage said.

The price of a two-storey home climbed 13.9 per cent year-over-year to $681,728, while the price of a bungalow rose 10.9 per cent to $490,018. Condo prices increased by 8.9 per cent to $373,768.

-Calgary Herald

Canadians ready to cash in on their property, poll finds; problem is, where to go next?

A new poll finds 41 per cent of Canadian with plans to sell their property are doing so to cash in and make a profit.

But the problem, according to the survey released Monday by Canadian Imperial Bank of Commerce, is 62 per cent say the cost of buying another house is making them “reluctant to sell” and move out of their current home.

“In today’s market, homeowners are facing a conundrum as to whether to buy, sell or stay put,” says David Nicholson, vice-president of CIBC Imperial Service.

The survey, conducted March 16-20 online with a margin of error of plus or minus 1.7 per cent points, 19 times out of 20, comes as the Greater Toronto Area housing market shows very few signs of slowing down.

The Toronto Real Estate Board reported  last week that overall prices for the GTA were up 33 per cent in March from a year ago with the average detached home in the city of Toronto selling for $1.56 million.

Rising values, which comes as some parts of the country are still watching their housing markets struggle, has policy makers grappling for a solution. Finance Minister Bill Morneau has pledged to speak with provincial and municipal officials in Canada’s largest city to work on a joint solution.

The poll finds that Canadians are worried about what the so-called solutions to the housing market might be with 48 per cent of homeowners, who are planning to sell, concerned that government tax and policy changes will lower housing prices.

Tougher rent controls continue to be discussed in the province, supported by a New Democrat private members bill, and the CIBC poll finds 28 per cent think that renting is a better option given current house prices.

More housing product could find its way into supply as the polls also finds 67 per cent of baby boomers, those 55 and over, plan to sell their homes with the top reason being to downsize at 63 per cent. Buying is also making baby boomers nervous about selling.

“Your home is where your heart is, but it’s also likely your biggest financial asset, so there is a lot to consider as you enter or near retirement that can affect your decision to sell or not,” said Mr. Nicholson.

In the millennial category, 39 per cent of those aged 18-34 are now homeowners, the rest renting or living with family. Another 23 per cent of millennials believe they will never own a home.

Overall, 62 per cent of those surveyed were homeowners, 31 per cent rented and seven per cent lived with parents or family.

-Calgary Herald

Calgary awash in record number of vacant condos and houses built at end of boom

Alberta’s boom and bust economy has left Calgary with record numbers of newly built homes and condos that sit vacant as a massive stockpile of housing goes up for sale at the end of a recession.

More than 2,000 new housing units were unoccupied in the Calgary area last month, the biggest inventory on record, driven largely by construction of apartment-style condos, according to the Canada Mortgage and Housing Corp.

This inventory of newly built homes and condos that haven’t been bought has been steadily growing since the recession began, having ballooned by more than a third, or 500 units, so far this year, CMHC data show.

 

Since pre-recession March 2014, the stockpile has nearly quadrupled in size.

Todd Hirsch, chief economist at ATB Financial, said the major housing glut shows “we’re not quite out of the woods” after a bruising recession, though he noted other indicators, from retail sales to employment, suggest the economy is improving.

“Things are moving in the right direction,” Hirsch said. “That’s not to say all of that unoccupied inventory gets absorbed right away; it could still take a year.”

Many of the residential developments causing the glut broke ground in 2014, which marked the end of a boom with a dramatic slide in oil prices, triggering a prolonged recession.

Construction began on a record 17,000 housing units in Calgary in 2014, including 6,700 apartment-style condos, according to the country’s national housing agency. A year later, the city posted another 13,000 housing starts.

The result is 144 empty units downtown and in Eau Claire. The largest concentration of new, unsold homes and condos are in 10 northeast neighbourhoods, from Skyview Ranch to Sunridge, where a total of 420 units are vacant.

While apartment-style condos account for more than half of the current housing surplus, there are large clusters of new, unsold homes in south Calgary suburbs.

Across a swath of 24 southern neighbourhoods, from Evergreen to Legacy and from Douglas Glen to Cranston, there are 400 newly built, unoccupied homes, according to Canada’s housing agency.

About 465 new single-family homes in the Calgary area haven’t been sold, well above the five-year average of 400, housing data show. Another 360 new semi-detached and row houses remain on the market.

Still, CMHC analyst Richard Cho said he believes homebuilders are preparing for the spring buying season, noting there are fewer homes on the resale market than there were a year ago.

Cho expects new construction of multi-family housing, such as condo towers, will decline this year allowing buyers to take some oversupplied units off the market.

Still, CMHC forecasts construction of single family homes will rise slightly this year and again in 2018.

Home builders broke ground on a total of 1,150 new units last month, well over the 411 housing starts reported a year ago, but below the 1,640 starts in 2015.

“The economy has been moving up so we expect demand to also climb higher,” Cho said.

-Calgary Herald