Housing Market Information

National Housing Outlook In Detail

Housing starts strengthened in the second half of 2009 after getting off to a slow start in the fi rst half of the year. Despite this pick-up in activity, 2009 saw housing starts decrease to 149,081 units, compared to 211,056 in 2008. Given the degree of economic uncertainty, we have considered an array of economic scenarios to generate a range for the housing outlook in 2010 and 2011.

Accordingly, we expect starts to be between 152,000 and 189,300 units in 2010 and between 156,400 and 205,600 units in 2011. CMHC’s point forecast for housing starts is for an increase to 171,250 in 2010 and 175,150 in 2011.

Housing starts were down in most provinces in the fi rst half of 2009, however, activity turned decidedly more positive in the second half and this is expected to continue in 2010. As 2010 progresses, nearly all provinces will experience growth in starts, with Western Canada leading the way.

Measures recently announced for government-backed mortgage insurance will moderate housing starts activity.

Some potential buyers will have to save a larger down payment to offset higher qualifying mortgage rates and thus postpone their purchase of new housing. Some may buy smaller, less expensive, new homes.

Other buyers wishing to invest in new rental housing of up to four units will also have to save larger down payments. The new measures, however, are only a few of the many factors that will affect the new housing market.

Single-detached starts to moving up in 2010

Stronger price growth for single- detached homes has reduced the demand for this type of housing in recent years and has increased demand for less expensive multi- family housing.

Financial and economic conditions over the past two years have also contributed to the downward trend in single starts. Since the second quarter of 2009, however, single starts rebounded in most provinces as improving homeownership demand spilled over from the resale to the new home market.

Given this improved demand, single starts will increase from 75,659 units in 2009 to 86,450 units in 2010 and then a slight decrease to 85,850 units in 2011.

All provinces will see an increase in the number of single-detached starts during 2010. In British Columbia, starts of single-detached homes will see the largest percentage increase in the country for 2010.

Multi-family starts are also more positive

Like the singles market, the number of multi-family housing starts (row, semi-detached and apartment units) decreased during the fi rst half of 2009 and have since rebounded. There will be about 84,800 multiple unit starts in 2010, increasing to 89,300 units in 2011 as stronger economic activity and employment support housing demand.

At the provincial level, most provinces will see an increase in the number of multi-family starts in both 2010 and 2011.

MLS® sales improving

Existing home sales through the Multiple Listings Service® (MLS®) trended lower during 2008 after reaching record levels in 2007.

Since January 2009, however, MLS® sales have rebounded from 349,064 transactions in the fi rst quarter to 551,828 transactions in the fi nal quarter of 2009. Part of this refl ects the release of pent-up demand from early 2009.

The level of sales is not likely to be sustained, as pent-up demand is exhausted and fi nancing costs increase with anticipated higher interest rates later in 2010.

In addition, the aforementioned measures recently announced for government-backed mortgage insurance will moderate resale activity in much the same way as for new home construction.

As is the case for housing starts, we have generated a range of forecasts for MLS® sales that refl ect different economic scenarios. For 2010, we forecast that MLS® sales will be between 455,350 and 509,900 units. In 2011, MLS® sales will be between 426,300 and 494,600 units.

CMHC’s point forecast is 486,700 MLS® sales this year and 469,950 next year, compared to 464,730 units sold in 2009.

Sellers’ market conditions are supporting stronger house prices

The resale market began 2009 in buyers’ market territory in most markets across Canada.

This was due to slowing sales at the end of 2008 and higher levels of new listings.

As a result, this moved many markets away from the sellers’ conditions that were dominant over the past few years and into buyers’ market territory.

By the last two quarters of 2009, however, rising sales of existing homes, at a pace exceeding gains in new listings, pushed many markets back into either balanced or sellers’ market conditions.

The swings in market conditions explain the decline in resale house prices in 2008 as well as the rebound in 2009. In 2010, as new listings catch-up to sales, market conditions are expected to be more balanced and house prices will decrease from $342,231 in the fourth quarter of 2009 to $339,126 by the fourth quarter of 2010.

A modest increase in house prices of 1.8 per cent is forecast for 2011. (This edition of the Housing Market Outlook expands on this in its Special Report: House Price Outlook)

There is also a compositional effect on national average resale house prices. During the course of 2008, the average MLS® price moved lower partly because of decreasing existing home sales in Canada’s more expensive housing markets.

Since February of 2009, this trend started to reverse and national average prices have been skewed up by the compositional effect.

Risks to the outlook house prices

Given economic uncertainty, it is important to understand the risks to the outlook.

On the downside, a slower than expected recovery for the U.S. economy could result in higher than expected unemployment in Canada. In addition, any renewed stress in fi nancial markets could result in higher unemployment as well as rising mortgage rates. These factors could lead to lower housing demand.

On the other hand, the continued improvement in fi nancial market conditions could lead to lower risk premiums, which, in turn, could keep mortgage rates lower than expected. The result would be a stronger demand for housing.

A stronger than expected economic response to the fi scal and monetary stimulus packages could also boost employment growth and lead to stronger housing demand. Considering the risks to the outlook, we expect that housing starts will be in the 152,000 to 189,300 unit range for 2010 and 156,400 to 205,600 unit range for 2011.

Existing home sales through MLS® services will be between the 455,350 and 509,900 unit range for 2010 and between the 426,300 to 494,600 unit range for 2011.

Trends Impacting Housing

Mortgage Rates

The Bank of Canada cut the Target for the Overnight Rate in the early months of 2009.

The rate was 1.50 per cent at the start of 2009 and has since fallen to 0.25 per cent.

The Bank has committed to keeping this rate at 0.25 per cent through the middle of 2010 unless infl ationary pressures warrant an increase.

Mortgage rates fell over the course of 2009, but are now expected to remain relatively stable going forward.

According to CMHC’s base case scenario, posted mortgage rates will gradually increase throughout the course of 2010, but will do so at a slow pace.

For 2010, the one-year posted mortgage rate is assumed to be in the 3.7-4.3 per cent range, while three and fi ve-year posted mortgage rates are forecast to be in the 4.4-6.0 per cent range.

For 2011, the one- year posted mortgage rate is assumed be in the 4.7-5.4 per cent range, while three and five-year posted mortgage rates are forecast to be in the 5.1-6.7 per cent range.

Rates could, however, increase at a faster clip if the economy recovers at a stronger pace than presently anticipated.

Conversely, rate increases could be more muted if the economic recovery is more modest in nature.

Migration

Net migration (immigration minus emigration) was about 278,000 in 2009.

Net migration is expected to move higher over the next two years due to an improving economic and employment environment.

In 2010, net migration is forecast to increase to approximately 280,150 while 2011 will see 290,900; this will fuel demand for housing, particularly rental housing.

Employment and Income

Nearly 415,000 jobs were lost between October 2008 and August 2009.

However, monthly data show that approximately 91,000 jobs were created between August and December 2009.

Employment is forecast to improve along with economic output and increase by 0.9 per cent in 2010 and by 1.8 per cent in 2011.

The unemployment rate is expected to be in the 8.4 per cent range in 2010 and about 8.1 per cent in 2011.

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