this month in real estate february canada 20090203
DESCRIPTION
Information regarding the Real Estate economy for February in Canada.TRANSCRIPT
February 2009
This Month in Real Estate Canada
2KW Research
CommentaryWith the Canadian housing sector entering into a cyclical downturn, there are opportunities for consumers and developers to take advantage of significantly lower interest rates and moderating construction costs. Quality borrowers continue to receive access to loans and lending continues to remain strong, regardless of perceptions otherwise. Five-year fixed rates in January 2009 averaged around 5.79%, which is significantly lower than the 2008 average of 7.1%.
In terms of the national housing picture, Canadian home prices have decreased by 11%, yet in 7 out of 12 provinces average home prices actually increased. On the whole, housing affordability continues to improve. The declining sales to new listings ratio indicates that home markets are shifting toward a buyers’ market following a sustained, multi-year sellers’ market. Canada’s economy remains slow, but having entered the recession with a lower unemployment rate and a stronger fiscal position than in previous years, Canada’s banking experts predict the economy as a whole will begin a recovery in the second half of 2009. To help boost the speed of this recovery, The Bank of Canada is actively cutting rates. In addition, the government has proposed a robust stimulus package to help stimulate the economy.
3KW Research
The Numbers That Drive Real Estate
1.Sales
2.Prices
3. Inventory
4.Mortgage Rates
5.Affordability
4KW Research
Home SalesIn Thousands
Home Sales: Total from January to December every year
Source: Conference Board - CREA
335 334 381 421 437 462 486 486 524 4340
200
400
600
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Sales activity decreased by 17% in 2008. Seasonally adjusted sales fell by 1.8% in December in comparison to November. This was a much smaller decline than the double digit declines in September and October.
5KW Research
Average Home PriceIn Thousands
Average Home price as of December every year
Source: Conference Board - CREA
$161 $165 $180 $193 $211 $234 $256 $277 $316 $2810
100
200
300
400
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
The average home price declined 11% to $281,110 in December. According to CREA, declines in prices occurred in approximately 50% of local markets. Declining prices continue to be most evident in the more costly markets.
6KW Research
Home Prices by Province7 out of 12 provinces experienced an increase in home price
N.T
$362K
YK.
$202K
B.C.
$429KAlta.
$328KSask.
$220K
Man.
$180K Ont.
$280K
Que.
$213K
N.L $206K
N.S. $182K
N.B. $142KAverage Home price as of December every year
Source: Conference Board - CREA
P.E.I. $161K
Prices Increased
Prices Decreased
Home Price Direction (Year-Over-Year Change)
7KW Research
Inventory Sales to New Listings Ratio
Inventory as of December every year
Source: Conference Board - CREA
56% 56% 75% 65% 64% 64% 65% 62% 60% 38%0%
20%
40%
60%
80%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Sales as percentage of new listings, a measure of market strength, declined to 38% in December. There were also fewer houses going on the market as new listings in December were down 8% from the peak levels in May 2008.
8KW Research
Mortgage Rates 5-Year Fixed
Mortgage rates as of January every year
Source: Bank of Canada
8.55% 7.75% 7.00% 6.45% 6.05% 6.05% 6.30% 6.65% 7.39% 5.79%0%
2%
4%
6%
8%
10%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Bank credit continues to flow to households regardless of perceptions of tightened lending conditions, and mortgage lending to households continues to increase. Quality borrowers continue to receive access to loans and are enjoying low mortgage rates. Five-year fixed rates in January averaged around 5.79% which is significantly lower than the 2008 average of 7.1%.
9KW Research
Affordability – Detached Bungalow (% of Income)
Proportion of median pre-tax household income required to service the cost of mortgage payments for a detached bungalow (principal, interest, property taxes and utilities) The higher the measure, the less affordable it is.
Quarterly Affordability
Source: Royal Bank of Canada
Housing affordability improved in all of the Canadian regions for detached bungalows. Less affordable areas, such as Vancouver and British Columbia, experienced the greatest corrections.
Region Q2 2008 Q3 2008 Change
British Columbia 73.0% 69.7% -3.3%
Alberta 43.8% 43.0% -0.8%
Saskatchewan 50.6% 47.7% -2.9%
Manitoba 40.4% 39.5% -0.9%
Ontario 44.8% 44.1% -0.7%
Quebec 36.3% 35.3% -1.0%
Atlantic 35.7% 35.4% -0.3%
Toronto 54.3% 53.3% -1.0%
Montreal 41.1% 40.4% -0.7%
Vancouver 78.8% 74.8% -4.0%
Ottawa 43.4% 43.3% -0.1%
Calgary 48.1% 47.3% -0.8%
Edmonton 43.6% 43.2% -0.4%
Canada 46.8% 45.7% -1.1%
10KW Research
Affordability - Townhouses (% of Income) Proportion of median pre-tax household income required to service the cost of mortgage payments for a standard townhouse (principal, interest, property taxes and utilities) The higher the measure, the less affordable it is.
Quarterly Affordability
Source: Royal Bank of Canada
For townhomes, affordability conditions improved in all of the Canadian regions as well. Areas that experienced most of the correction are Saskatchewan and Calgary.
Region Q2 2008 Q3 2008 Change
British Columbia 55.8% 53.8% -2.0%
Alberta 34.2% 32.1% -2.1%
Saskatchewan 43.4% 39.1% -4.3%
Manitoba 26.8% 25.8% -1.0%
Ontario 37.1% 36.5% -0.6%
Quebec 30.9% 30.2% -0.7%
Atlantic 31.9% 30.3% -1.6%
Toronto 47.0% 46.1% -0.9%
Montreal 36.0% 35.3% -0.7%
Vancouver 59.1% 57.2% -1.9%
Ottawa 34.0% 34.0% 0.0%
Calgary 40.4% 36.1% -4.3%
Edmonton 31.2% 30.3% -0.9%
Canada 38.0% 36.9% -1.1%
11KW Research
Top 10 Most Affordable Markets
1. Cape Breton, Nova Scotia2. Thunder Bay, Ontario3. Chatham, Ontario4. Windsor, Ontario5. Moncton, New Brunswick6. Saguenay, Quebec7. Saint John, New Brunswick8. Trois-Rivieres, Quebec 9. St. John’s, Newfoundland10. Winnipeg, Manitoba
Source: 5th Annual Demographia International Housing Affordability Survey
12KW Research
Snapshot of the Economy
1.Gross Domestic Product
2.Composite Leading Indicator
3. Inflation
4.Unemployment
13KW Research
Summary of Key Metrics
Source: Statistics Canada
The economy slipped into recession in November, almost an entire year later than the US. Historically, the lag between the US and Canada is usually shorter, giving some glimmers of resiliency in the Canadian economy. However, the weakening economy and declining commodity prices are placing downward pressures on inflation. While the unemployment rate recently increased to 6.6%, it’s still below the 10-year average of 7.3%.
Metrics Simple Definition %
Real GDP (% Change) Standard measure of the overall economy -0.7%
Composite Leading Indicator (% Change)
Combination of 10 economic metrics that provide early signals of changes in the direction of key sectors within the economy -0.6%
Inflation Rate General increase in prices across the economy 1.2%
Unemployment Rate% of the labour force that is actively looking for work but still unemployed 6.6%
14KW Research
Recent Government Action
15KW Research
Bank of Canada lowers overnight interest rate to 1% - January 20, 2009
The Bank of Canada lowered the overnight interest rate to 1%, a new record low to mitigate downward pressures on the economy and stabilize the financial system.
This headline interest rate sets the trend for other key rates, such as lending for automobiles, mortgages and commercial loans.
The policy interest rate has been lowered by 3 and a half percentage points since the end of December 2007.
16KW Research
Canada’s Finance Minister Jim Flaherty Unveils Stimulus Package - January 20, 2009
Goal: To minimise the impact of the recession and restore proper
functioning for impaired areas of the credit markets as well as boost the economy.
The Plan: A stimulus package totaling $40 billion dollars over the next two
years was proposed. Approximately three-quarters of this stimulus was allocated towards new spending.
Key areas:1. Spending on infrastructure investments, communities, skills and work-
transition strategies2. Tax relief for individuals, households and businesses
To restore liquidity to credit markets, $125 billion was allocated to help businesses and households access new loans
Source: http://www.budget.gc.ca/2009/plan/bpc1-eng.asp
17KW Research
Housing-Related Provisions of the Proposed Stimulus PackageHome buyer tax relief
First-time home buyers to receive $750 Increase in withdrawal limits from retirement savings plan
Withdrawal limits for Registered Retirement Savings Plan (RRSP) to increase from $20,000 to $25,000 for first-time home buyers
Home renovation tax credit Up to $1,350 in tax relief to reduce the cost of renovations These renovations must be between $1,000 and $10,000 and occur
between January 27, 2009 and February 1, 2010. ecoENERGY Retrofit program
Funds to support home energy efficiency retrofitsSocial housing investments
Construction for low-income seniors, persons with disabilitiesNew social housing unitsRenovations, energy retrofits and additional support for existing social
housing units
Source: http://www.budget.gc.ca/2009/plan/bpc1-eng.asp
18KW Research
This concludes the February 2009 Canadian Real Estate Market Update.
Courtesy of: Walter Weinreich
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