Metropolitan Condo Outlook Summer 2012
“Canadian housing markets thus appear destined to correct, but we think the correction will remain relatively mild, thanks to decent employment growth and continued low interest rates,” states a joint report out today by Genworth Canada and the Conference Board of Canada.
“But regional cracks will appear. Calgary, Ottawa, and Québec City look set to fare best. Conditions are weak in both major British Columbia markets. In Vancouver, slowing Chinese demand probably represents a larger threat to housing prices than poor affordability. In Toronto, the condominium market is slowing, but this will be gradual, not disorderly.”
A few highlights from their Metropolitan Condo Outlook Summer 2012 report include:
- Calgary is the most affordable city when analyzed relative to local incomes
- Calgary is expected to see starts increase 16 per cent, and absorptions are expected to more than double but both figures are nowhere near boom-era levels.
- Of the cities in the report, Calgary leads in predicted GDP growth and job growth
- Resale condo median price expected to increase 0.9% this year, 2.9% in 2013 and 3.5% in 2014.
- Resales are expected to increase 3.8% this year, 1.9% in 2013 and 1.5% in 2014.
Here is the commentary regarding Calgary:
Job gains, population growth, and low interest rates will support condominium demand in Calgary. A balanced resale market is expected this year, with moderate sales increases and resumed price growth. Falling unsold builder stocks will help lift starts in 2012, before they drop in 2013.
The market for new condominium apartments is regaining its footing in Calgary. Although new unit absorptions fell sharply in 2011, this mainly reflected sagging completions, themselves the product of weak starts following the 2009 recession. More importantly, unsold builder inventories have generally eased. Although these ticked up in the first quarter of this year, such a wintertime increase is common in Calgary and followed significant declines in two of the previous three quarters.
More broadly, inventories remain below year-earlier levels and are expected to keep easing through most of the next two years. This reflects both a recovering Calgary economy and pent-up demand. Employment rose in 2011, following two annual declines, and the ratio of starts to population growth barely exceeded its 20-year average last year after trailing it sharply in both 2009 and 2010. Accordingly, we expect condo starts to hit a four-year high of nearly 2,400 units in 2012 and to generally rise throughout our forecast. Still, the 2016 level of 2,753 starts will be well below the 2008 peak of more than 5,300 units.
The local resale market is stabilizing after a shortage of listings in early 2011 prompted an abrupt tightening. Although supply rose throughout the year, average listings over the full year were the fewest since 2006. Combined with a slight increase in sales during 2011, this lifted the full-year sales-to-active-listings ratio to 31 per cent, the highest since 2007. But the ongoing supply hikes, combined with generally steady sales, cut the ratio to 23 per cent by the fourth quarter and, further, to 21 per cent by the first quarter of 2012. High sales-to-new-listings ratios during the boom period prior to the recession make it difficult to determine what constitutes a balanced market here.
But it seems likely that a sales-to-listings ratio hovering just above 20 per cent is at the low end of this range. Similar readings in the past have been associated with price increases near 2 per cent—still positive growth, but below the long-term average.
We expect largely stable sales and gently easing listings to lift the ratio as 2012 progresses, with its value approaching 25 per cent by the fourth quarter. Next year will see further moderate listings declines combine with small sales increases to lift the ratio to nearly 27 per cent by the end of 2013, solidly positioning the Calgary resale market in balanced territory.
A weakening market balance trimmed prices during the second half of 2011. For the full year, the median price fell 2.3 per cent, the second drop in the past three years. A slightly tightening market balance will prompt price growth approaching 3 per cent in 2013.
Relatively high local incomes, combined with middleof-the-pack condominium prices, give Calgary the best affordability among the eight cities covered in this report.
Principle and interest charges are expected to consume only 8.9 per cent of local incomes during 2012, down from 9.2 per cent in 2011 and a peak of 12.7 per cent in 2007. Affordability is expected to remain good in 2013 as interest rates stay moderate and the median price rises at roughly the same pace as the expected increase in household income.
To download the entire report click here