Housing starts fall for a thi
Text By Advocate staff
Published: September 10, 2010 9:27 AM
Activity in Red Deer’s residential construction sector could be waning, after a third consecutive month in which 2010 housing starts were down from 2009.
Canada Mortgage and Housing Corp. reported on Thursday that work began on 36 homes in the city last month: 23 single-detached houses and 13 units in multi-family projects. That’s down 43 per cent from August 2009, when there were 43 single-detached starts and 20 multi-family starts for a total of 63.
In July, Red Deer recorded 42 housing starts, one fewer than in July 2009. And in June, the tally was 46, as compared with 65 the previous year.
Despite these year-over-year declines, total housing starts in Red Deer so far this year remain 64 per cent ahead of the 2009 tally to the same point. As of Aug. 31, work had started on 435 homes: 266 single-detached and 169 multi-family. That compares with 266 during the first eight months of 2009, including 190 single-detached and 76 multi-family.
Among the seven largest urban centres in the province, Red Deer, Lethbridge and Grande Prairie all posted big declines in the number of housing starts recorded this August. The Regional Municipality of Wood Buffalo was up slightly and Medicine Hat, Calgary and Edmonton all had sizable jumps in residential construction starts last month.
Nationally, the seasonally adjusted annual rate of housing starts in August decreased three per cent from 12 months earlier, said CMHC.
“Housing starts moved lower in August, reflecting a decrease in both single and multiple starts,” said Bob Dugan, chief economist at CMHC’s market analysis centre
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Resale activity slipping
Activity in the local residential resale market will remain subdued for the rest of this year, with only a slight improvement expected in 2011, says Canada Mortgage and Housing Corp.
In its latest housing market outlook, released on Tuesday, the national housing agency predicted that 3,000 Central Alberta homes will be sold through the Multiple Listing Service this year. That would be a 20.4 per cent drop from the 3,770 sales that closed in the region last year.
CMHC is projecting weaker year-over-year sales in five of Alberta’s seven larger urban centres, but the decline in Red Deer would be the greatest. Home resales in Calgary are forecast to fall 14 per cent, with Edmonton 11.2 per cent lower, Lethbridge down 8.4 per cent and Medicine Hat slipping 1.7 per cent.
MLS residential sales in Grande Prairie are expected to rise by 4.5 per cent, and the figure for the Regional Municipality of Wood Buffalo to jump 13.3 per cent this year.
In CMHC’s previous housing market outlook, issued in May, MLS sales in Central Alberta this year were anticipated to reach 3,500.
Looking further ahead, CMHC is calling for resales of local home to improve to 3,100 in 2011. Three months ago, it was forecasting 3,700 sales next year.
In its quarterly report, CMHC said resale transactions in Alberta received a boost during the first half of this year as buyers rushed to take advantage of market conditions — a trend that hasn’t continued.
Low interprovincial migration and higher monthly carrying costs for homeowners have also slowed sales.
Next year, said CMHC, “a tighter labour market, combined with wage growth and improved migration will expand sales in the low single-digits.”
For the Red Deer area, home resales are projected to reach 3,100 in 2011, as compared with the 3,700 that CMHC was forecasting in May.
Despite the drop in sales this year, CMHC expects the average price of MLS transactions in Central Alberta to hit $270,000 — 2.1 per cent higher than the $264,417 average last year but down slightly from the $273,000 it was forecasting in May. Next year, it anticipates that resale prices will average $275,000, a downward adjustment from the $282,000 it was previously projecting.
An increase in the number of home listings will continue to constrain prices, said CMHC.
The housing market outlook is rosier when it comes to new construction.
CMHC is anticipating 720 housing starts in Red Deer this year: 440 single-detached dwellings and 280 units in multi-family projects. Those figures are unchanged from the agency’s May forecast and much higher than the corresponding stats from 2009.
Specifically, residential starts this year are expected to be 44.9 per cent higher than last year’s 497, with the single-detached category up 32 per cent from the 333 starts last year, and multi-family units up 70.7 per cent over the 164 posted in 2009.
Compared to Alberta’s other large urban centres, the anticipated year-over-year jump in Red Deer’s total housing starts would be second only to Edmonton’s 50.4 per cent. And the local increase in the multi-family category would be the highest among the big cities.
Next year, housing starts in Red Deer are projected to number 770, with 460 single-detached homes and 310 multi-family units.
Those numbers are much more conservative than the figures CMHC was offering in May, when it projected 900 residential construction starts in 2011: 530 single-detached and 370 multi-family.
In its report, CMHC said the rising number of homes being built and increased competition from the resale market should impact demand and lead to a slowdown in the pace of construction.
“Wage and employment growth, as well as more balanced market conditions in 2011, will allow single-detached starts to increase in the single-digits.”
Nationally, CMHC is expecting housing starts to moderate during the remainder of this year and stabilize in 2011.
Bob Dugan, CMHC’s chief economist, said in a news release that existing home market conditions will remain balanced over the next two years as MLS resales ease and inventory levels remain elevated.
In 2011, MLS sales will move lower, CMHC said. And with an improved balance between demand and supply, the average MLS price is expected to edge lower through the end of 2010 and then rise modestly in 2011, it added.
In its latest housing market outlook, released on Tuesday, the national housing agency predicted that 3,000 Central Alberta homes will be sold through the Multiple Listing Service this year. That would be a 20.4 per cent drop from the 3,770 sales that closed in the region last year.
CMHC is projecting weaker year-over-year sales in five of Alberta’s seven larger urban centres, but the decline in Red Deer would be the greatest. Home resales in Calgary are forecast to fall 14 per cent, with Edmonton 11.2 per cent lower, Lethbridge down 8.4 per cent and Medicine Hat slipping 1.7 per cent.
MLS residential sales in Grande Prairie are expected to rise by 4.5 per cent, and the figure for the Regional Municipality of Wood Buffalo to jump 13.3 per cent this year.
In CMHC’s previous housing market outlook, issued in May, MLS sales in Central Alberta this year were anticipated to reach 3,500.
Looking further ahead, CMHC is calling for resales of local home to improve to 3,100 in 2011. Three months ago, it was forecasting 3,700 sales next year.
In its quarterly report, CMHC said resale transactions in Alberta received a boost during the first half of this year as buyers rushed to take advantage of market conditions — a trend that hasn’t continued.
Low interprovincial migration and higher monthly carrying costs for homeowners have also slowed sales.
Next year, said CMHC, “a tighter labour market, combined with wage growth and improved migration will expand sales in the low single-digits.”
For the Red Deer area, home resales are projected to reach 3,100 in 2011, as compared with the 3,700 that CMHC was forecasting in May.
Despite the drop in sales this year, CMHC expects the average price of MLS transactions in Central Alberta to hit $270,000 — 2.1 per cent higher than the $264,417 average last year but down slightly from the $273,000 it was forecasting in May. Next year, it anticipates that resale prices will average $275,000, a downward adjustment from the $282,000 it was previously projecting.
An increase in the number of home listings will continue to constrain prices, said CMHC.
The housing market outlook is rosier when it comes to new construction.
CMHC is anticipating 720 housing starts in Red Deer this year: 440 single-detached dwellings and 280 units in multi-family projects. Those figures are unchanged from the agency’s May forecast and much higher than the corresponding stats from 2009.
Specifically, residential starts this year are expected to be 44.9 per cent higher than last year’s 497, with the single-detached category up 32 per cent from the 333 starts last year, and multi-family units up 70.7 per cent over the 164 posted in 2009.
Compared to Alberta’s other large urban centres, the anticipated year-over-year jump in Red Deer’s total housing starts would be second only to Edmonton’s 50.4 per cent. And the local increase in the multi-family category would be the highest among the big cities.
Next year, housing starts in Red Deer are projected to number 770, with 460 single-detached homes and 310 multi-family units.
Those numbers are much more conservative than the figures CMHC was offering in May, when it projected 900 residential construction starts in 2011: 530 single-detached and 370 multi-family.
In its report, CMHC said the rising number of homes being built and increased competition from the resale market should impact demand and lead to a slowdown in the pace of construction.
“Wage and employment growth, as well as more balanced market conditions in 2011, will allow single-detached starts to increase in the single-digits.”
Nationally, CMHC is expecting housing starts to moderate during the remainder of this year and stabilize in 2011.
Bob Dugan, CMHC’s chief economist, said in a news release that existing home market conditions will remain balanced over the next two years as MLS resales ease and inventory levels remain elevated.
In 2011, MLS sales will move lower, CMHC said. And with an improved balance between demand and supply, the average MLS price is expected to edge lower through the end of 2010 and then rise modestly in 2011, it added.
Conflicting views on 'bubble' emerging
Home prices that continue to inflate even as sales and construction activity fall sparked conflicting views in two new reports Tuesday over whether the Canadian housing market has become a precarious bubble that could burst at any time.
The reports place renewed emphasis on questions that have been simmering since Canada’s housing market appeared to be overheating earlier this year before a major spring slowdown.
Is Canada experiencing a housing bubble?
If so, when will it burst? And, perhaps most troubling for homeowners, will Canadians face a crisis like the one in the U.S?
In the view of the Canadian Centre for Policy Alternatives, prices in six of Canada’s largest housing markets are in bubble territory for the first time in 30 years — and a U.S.-style correction is still not out of the question.
But the C.D. Howe Institute dismissed the possibility in its own report, which concluded that Canada’s cautious mortgage lending policies will protect against a housing crash similar to the one that has hammered the market in the United States.
Bubbles generally occur when housing prices rise faster than inflation, incomes and economic growth, until they reach unsustainable levels and a collapse in prices is triggered.
Many of the concerns about the Canadian housing market are motivated by the recent experience in the U.S., where one in 10 homeowners faces foreclosure.
But there is little likelihood of a surge in foreclosures or a collapse of house prices in Canada, according to the C.D. Howe report.
That’s because of the country’s tighter mortgage requirements — which include a minimum down payment of five per cent, as opposed to zero down at some U.S. banks — as well as regulations against risky lending and a much smaller subprime mortgage market, the C.D. Howe report says.
U.S. home prices fell about 30 per cent between 2006 and 2009, while Canadian prices fell only about nine per cent before a rapid bounceback last year.
Canadian homes are now estimated to be overvalued by as much as 15 to 20 per cent.
The CMHC predicts average prices in the third quarter of this year will be $336,400, a 2.4 per cent decline from an April peak of over $344,000.
The Canadian Centre for Policy Alternatives report says the steep rise in house prices — which now sit at 4.7 to 11.3 times Canadians’ annual income in many cities — is an “accident waiting to happen.”
It would take only a one to 1.25 per cent mortgage rate increase by Canada’s big banks to cause a housing crash similar to the one the U.S. is grappling with, said David Macdonald, author of the report.
However, many economists have concluded that Canada’s once-overheating housing market, which began to cool in the second quarter of the year, has stopped just shy of a bubble.
Adrienne Warren, a real estate economist at Scotiabank, said overvaluation in the Canadian market is largely due to underlying supply and demand conditions that have driven prices up, and not the type of speculative activity normally associated with a housing bubble.
“Given the strength of demand, there was a shortage of choice out there and that led to essentially sellers’ market conditions throughout the decade. It’s something that is fairly unprecedented,” Warren said.
She maintained that Canada’s housing market will avoid a sharp correction, and will instead continue to see a gradual softening in prices.
“A trigger for a sharp correction would be signs of overbuilding ... or a recession and a sharp rise in unemployment rates,” she said.
“That’s not the typical scenario we see unfolding for the next few years.”
Bob Dugan, chief economist at the Canada Mortgage and Housing Corporation, said new housing starts are expected to moderate in the second half of this year and stabilize in 2011 as they adjust to lower demand, which should further deflate fears of a bubble.
He pointed out that while prices have risen rapidly from a trough at the end of 2008, they have increased by a more moderate 2.1 per cent over the 31-month period beginning with a pre-recession peak of $325,000 at the end of 2007 to around $332,000 in July.
Dugan said home prices are expected to gradually decrease, and there isn’t a lot of evidence to support the fact that Canada is experiencing a house-price bubble.
The CMHC predicts average prices in the third quarter of this year will be $336,400, a 2.4 per cent decline from an April peak of over $344,000, Dugan said.
“I don’t think it has to do with a bursting bubble. It has to do with the fact that ... we’re seeing a different balance between supply and demand.”
The reports place renewed emphasis on questions that have been simmering since Canada’s housing market appeared to be overheating earlier this year before a major spring slowdown.
Is Canada experiencing a housing bubble?
If so, when will it burst? And, perhaps most troubling for homeowners, will Canadians face a crisis like the one in the U.S?
In the view of the Canadian Centre for Policy Alternatives, prices in six of Canada’s largest housing markets are in bubble territory for the first time in 30 years — and a U.S.-style correction is still not out of the question.
But the C.D. Howe Institute dismissed the possibility in its own report, which concluded that Canada’s cautious mortgage lending policies will protect against a housing crash similar to the one that has hammered the market in the United States.
Bubbles generally occur when housing prices rise faster than inflation, incomes and economic growth, until they reach unsustainable levels and a collapse in prices is triggered.
Many of the concerns about the Canadian housing market are motivated by the recent experience in the U.S., where one in 10 homeowners faces foreclosure.
But there is little likelihood of a surge in foreclosures or a collapse of house prices in Canada, according to the C.D. Howe report.
That’s because of the country’s tighter mortgage requirements — which include a minimum down payment of five per cent, as opposed to zero down at some U.S. banks — as well as regulations against risky lending and a much smaller subprime mortgage market, the C.D. Howe report says.
U.S. home prices fell about 30 per cent between 2006 and 2009, while Canadian prices fell only about nine per cent before a rapid bounceback last year.
Canadian homes are now estimated to be overvalued by as much as 15 to 20 per cent.
The CMHC predicts average prices in the third quarter of this year will be $336,400, a 2.4 per cent decline from an April peak of over $344,000.
The Canadian Centre for Policy Alternatives report says the steep rise in house prices — which now sit at 4.7 to 11.3 times Canadians’ annual income in many cities — is an “accident waiting to happen.”
It would take only a one to 1.25 per cent mortgage rate increase by Canada’s big banks to cause a housing crash similar to the one the U.S. is grappling with, said David Macdonald, author of the report.
However, many economists have concluded that Canada’s once-overheating housing market, which began to cool in the second quarter of the year, has stopped just shy of a bubble.
Adrienne Warren, a real estate economist at Scotiabank, said overvaluation in the Canadian market is largely due to underlying supply and demand conditions that have driven prices up, and not the type of speculative activity normally associated with a housing bubble.
“Given the strength of demand, there was a shortage of choice out there and that led to essentially sellers’ market conditions throughout the decade. It’s something that is fairly unprecedented,” Warren said.
She maintained that Canada’s housing market will avoid a sharp correction, and will instead continue to see a gradual softening in prices.
“A trigger for a sharp correction would be signs of overbuilding ... or a recession and a sharp rise in unemployment rates,” she said.
“That’s not the typical scenario we see unfolding for the next few years.”
Bob Dugan, chief economist at the Canada Mortgage and Housing Corporation, said new housing starts are expected to moderate in the second half of this year and stabilize in 2011 as they adjust to lower demand, which should further deflate fears of a bubble.
He pointed out that while prices have risen rapidly from a trough at the end of 2008, they have increased by a more moderate 2.1 per cent over the 31-month period beginning with a pre-recession peak of $325,000 at the end of 2007 to around $332,000 in July.
Dugan said home prices are expected to gradually decrease, and there isn’t a lot of evidence to support the fact that Canada is experiencing a house-price bubble.
The CMHC predicts average prices in the third quarter of this year will be $336,400, a 2.4 per cent decline from an April peak of over $344,000, Dugan said.
“I don’t think it has to do with a bursting bubble. It has to do with the fact that ... we’re seeing a different balance between supply and demand.”
Housing bubble threat resurfaces
Home sales may be slowing, but prices in six of Canada's largest housing markets are in bubble territory for the first time in 30 years — and a U.S.-style correction is still not out of the question, according to a report from an Ottawa-based think tank.
The report by the Canadian Centre for Policy Alternatives, to be released Tuesday, says home prices now sit at 4.7 to 11.3 times Canadians’ annual income — much higher than historical comfort levels of between three and four times income.
"To see all of the (major) markets outside of that comfort zone is very unique and concerning," said David Macdonald, a research associate who authored the report entitled "Canada's Housing Bubble: An Accident Waiting To Happen."
Sales have fallen by 25 per cent since reaching a peak at the beginning of the year as fewer buyers compete and more houses come onto the market. But Canadian home prices were up 13.6 per cent in June from a year ago in Canada's major cities, according to the Teranet-National Bank composite house price index.
June prices were up 1.5 per cent compared to May — the largest monthly increase since last August and the 14th straight monthly increase.
The steep rise in house prices in so many cities points toward an "accident waiting to happen,” Macdonald said.
In the past 30 years Canada's housing market has undergone three bubbles. Bubbles occur when housing prices increase more rapidly than inflation, household incomes and economic growth, according to the report.
Each of Canada's previous bubbles was punctured by only a one per cent rise in interest rates over two years, Macdonald warned.
It would take only a one per cent to 1.25 per cent mortgage rate increase by Canada's big banks to cause a housing crash similar to the one the U.S. is grappling with, he added.
Vancouver saw housing bubbles in 1981 and 1994 and another one burst in Toronto in 1989. In Canada's other major markets — Calgary, Edmonton, Ottawa, and Montreal — prices remained stable from 1980 to 2001 at around $150,000 to $220,000 in today's dollars.
"The concern today is all six major markets, not just Vancouver and Toronto, are out of that comfort zone," Macdonald said. "All six major markets now have an average price of over $300,000."
And the current cooling trend doesn't necessarily signify that the market has emerged from a bubble, he added.
Before Toronto's housing market crashed in 1989, the market saw a similar decline in sales volumes in 1987, but that marked only the halfway point before further increases led to the burst.
Douglas Porter, deputy chief economist at the Bank of Montreal, said that while the report's warnings should not be dismissed as completely improbable, it's clear that the market is backing off bubble territory as price increases subside.
"Given the rebound we've seen in employment in the last year in Canada and the fact that interest rates are still at extremely favourable levels, I can't get that pessimistic on the outlook for housing," he said.
Many economists have concluded that Canada's once overheating housing market, which began to cool in the second quarter of the year, has stopped just shy of a bubble. They credit stricter Canadian lending rules with preventing the type of dramatic crash experienced stateside, where one in 10 households is facing foreclosure.
"A lot of the fundamental differences between the Canadian and U.S. markets suggest that we're far less likely to have the kind of deep downturn that the U.S. market went through," said Porter.
However, Canada is not immune to a serious housing market correction and if prices continue to rise for a prolonged period, even as the resale market slides, that could be a danger sign, he added.
Macdonald said he sees at least a few similarities in home price index data between some American and Canadian cities. Calgary and Edmonton have seen the same price increases as some of the worst-hit U.S. cities, for example.
Canadian homes remain affordable because mortgage rates sit at record lows, but home affordability could change rapidly if rates return even partway to their historic norms, the report warns.
If that does happen, young families who have over-extended themselves and seniors relying on selling their house for retirement income would be most affected.
Macdonald said there's about a six-month to one-year window of opportunity before mortgage rates rise dramatically to "let some air out of the housing market" and help prevent the possibility of future bubbles.
Mortgage qualification changes announced in April, meant to discourage homeowners from taking out mortgages on homes they might not be able to afford down the road, didn't go far enough, Macdonald said.
He argued that the government should change the required downpayment from five per cent to ten per cent to further deter those who won't be able to afford rate increases.
But Porter said there's little point in increasing the minimum downpayment level now as the market is softening on its own.
He pointed out that the bubble bursts of the early 1990s were sparked by the Bank of Canada's decision to raise interest rates to 10 per cent above inflation, aimed at taking down the housing market.
"I don't see the Bank of Canada going on a campaign to lift interest rates to absolutely crush the housing sector. It's just not that much of an inflation concern to them this time," Porter said.
The report by the Canadian Centre for Policy Alternatives, to be released Tuesday, says home prices now sit at 4.7 to 11.3 times Canadians’ annual income — much higher than historical comfort levels of between three and four times income.
"To see all of the (major) markets outside of that comfort zone is very unique and concerning," said David Macdonald, a research associate who authored the report entitled "Canada's Housing Bubble: An Accident Waiting To Happen."
Sales have fallen by 25 per cent since reaching a peak at the beginning of the year as fewer buyers compete and more houses come onto the market. But Canadian home prices were up 13.6 per cent in June from a year ago in Canada's major cities, according to the Teranet-National Bank composite house price index.
June prices were up 1.5 per cent compared to May — the largest monthly increase since last August and the 14th straight monthly increase.
The steep rise in house prices in so many cities points toward an "accident waiting to happen,” Macdonald said.
In the past 30 years Canada's housing market has undergone three bubbles. Bubbles occur when housing prices increase more rapidly than inflation, household incomes and economic growth, according to the report.
Each of Canada's previous bubbles was punctured by only a one per cent rise in interest rates over two years, Macdonald warned.
It would take only a one per cent to 1.25 per cent mortgage rate increase by Canada's big banks to cause a housing crash similar to the one the U.S. is grappling with, he added.
Vancouver saw housing bubbles in 1981 and 1994 and another one burst in Toronto in 1989. In Canada's other major markets — Calgary, Edmonton, Ottawa, and Montreal — prices remained stable from 1980 to 2001 at around $150,000 to $220,000 in today's dollars.
"The concern today is all six major markets, not just Vancouver and Toronto, are out of that comfort zone," Macdonald said. "All six major markets now have an average price of over $300,000."
And the current cooling trend doesn't necessarily signify that the market has emerged from a bubble, he added.
Before Toronto's housing market crashed in 1989, the market saw a similar decline in sales volumes in 1987, but that marked only the halfway point before further increases led to the burst.
Douglas Porter, deputy chief economist at the Bank of Montreal, said that while the report's warnings should not be dismissed as completely improbable, it's clear that the market is backing off bubble territory as price increases subside.
"Given the rebound we've seen in employment in the last year in Canada and the fact that interest rates are still at extremely favourable levels, I can't get that pessimistic on the outlook for housing," he said.
Many economists have concluded that Canada's once overheating housing market, which began to cool in the second quarter of the year, has stopped just shy of a bubble. They credit stricter Canadian lending rules with preventing the type of dramatic crash experienced stateside, where one in 10 households is facing foreclosure.
"A lot of the fundamental differences between the Canadian and U.S. markets suggest that we're far less likely to have the kind of deep downturn that the U.S. market went through," said Porter.
However, Canada is not immune to a serious housing market correction and if prices continue to rise for a prolonged period, even as the resale market slides, that could be a danger sign, he added.
Macdonald said he sees at least a few similarities in home price index data between some American and Canadian cities. Calgary and Edmonton have seen the same price increases as some of the worst-hit U.S. cities, for example.
Canadian homes remain affordable because mortgage rates sit at record lows, but home affordability could change rapidly if rates return even partway to their historic norms, the report warns.
If that does happen, young families who have over-extended themselves and seniors relying on selling their house for retirement income would be most affected.
Macdonald said there's about a six-month to one-year window of opportunity before mortgage rates rise dramatically to "let some air out of the housing market" and help prevent the possibility of future bubbles.
Mortgage qualification changes announced in April, meant to discourage homeowners from taking out mortgages on homes they might not be able to afford down the road, didn't go far enough, Macdonald said.
He argued that the government should change the required downpayment from five per cent to ten per cent to further deter those who won't be able to afford rate increases.
But Porter said there's little point in increasing the minimum downpayment level now as the market is softening on its own.
He pointed out that the bubble bursts of the early 1990s were sparked by the Bank of Canada's decision to raise interest rates to 10 per cent above inflation, aimed at taking down the housing market.
"I don't see the Bank of Canada going on a campaign to lift interest rates to absolutely crush the housing sector. It's just not that much of an inflation concern to them this time," Porter said.
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