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Wednesday, 25 November 2015
What's happening in real estate markets outside of Toronto and Vancouver?
What's happening in real estate markets outside of Toronto and Vancouver?
THE OTHER MARKETS
While most of the attention paid to house prices focuses on the big markets of Toronto, Vancouver and Calgary, there are other cities in Canada. Real estate reporter Tamsin McMahon looks at six smaller markets across the country that are being affected by changing economic conditions
It may come as a surprise to many Canadians that for several years the hottest resource economy in the country wasn’t Calgary, but St. John’s. Propelled by a boom in offshore oil development and billions in mining and infrastructure investments, the economy of Newfoundland and Labrador has grown roughly 50 per cent since 2000. Jobs and wage hikes quickly followed. Investors from other provinces and as far away as Ireland poured into the market, buying up dozens of homes at a time for rentals. Home prices boomed, more than doubling since 2000 and rising 25 per cent in one year through 2007 and 2008.
“It’s like Newfoundland had to catch up to the rest of Canada, but they did it in just 10 years,” says St. John’s real-estate broker Teri-Lynn Jones.
Such furious growth was bound to come to an end eventually. Softening prices for oil and other commodities has slowed the province’s economic growth. Rural areas outside St. John’s have seen the return of workers from Alberta. Economists are calling for the province to slip into recession this year. Unemployment hit 13.8 per cent in May, the highest level since 2010. Mines have closed, while the bulk of construction has finished on several major infrastructure projects, meaning less demand for construction workers. Several restaurants have shut down and the closure of Target and Future Shop have left an abundance of retail space.
Data are Newfoundland and Labrador.
The slowdown has effectively cooled the city’s overheated housing market. The volume of resale home sales across Newfoundland fell 5 per cent in May compared to a year earlier, while average prices dropped 4.6 per cent.
“The heat went out of the market,” says realtor Glenn Larkin. “Multiple offers have slowed down. We were down to where homes were selling in a week. Now we’ve gone back to a normal market, where you put a house for sale and 60-90 days later it sells.”
The resale market is being supported by first-time buyers, who make up about half of the St. John’s market, Ms. Jones said. Many have been able to find good jobs after graduating from university, helping to slow the outflow of young workers to other parts of Canada.
But the market is also grappling with a surplus of expensive, newly built homes aimed at move-up buyers, many started when property values were soaring. Builders have begun offering incentives to move a glut of new supply. “If you need to sell your current home first, don’t worry about it – the builder will buy it,” reads an ad for Southlands, a new development of executive homes.
Street scenes on Wyandotte Street in Windsor, Ont. Feb. 8, 2012. (Kevin Van Paassen/The Globe and Mail)
If Calgary’s housing market serves as a proxy for the health of the country’s resource industry, then Windsor’s real-estate market is perhaps the best gauge of the strength of Canadian manufacturing.
The Southwestern Ontario city’s workforce was hard-hit by the global financial crisis, which sent North American automakers scrambling for government bailouts. The economic downturn came on top of a steadily appreciating Canadian dollar that helped to bleed jobs to cheaper markets to the south. Windsor’s home prices took a similar beating, falling more than 6 per cent from 2006 to 2009, in what was already among the country’s cheapest housing markets.
These days Windsor appears to be in the midst of a remarkable turnaround. Home sales were up nearly 30 per cent in the first quarter of the year. Average resale prices are up 5 per cent from last June, making the city one of Canada’s hottest markets.
“Any decent home is selling fairly quickly and is getting multiple offers,” says Windsor real-estate broker Gary Barbesin. “A lot of them are going over the asking price.”
Windsor’s housing market is being helped by a trifecta of favourable economic developments: lower interest rates, cheaper oil prices and a falling loonie. The resurgent North American automotive market has also helped. Tool-and-die shops are staffing up and the local Chrysler assembly plant recently reopened after a major retooling.
Many of the workers in the skilled trades who had been sitting on the fence over fears their jobs could be cut or hours scaled back are starting to return to the market. “My clients that are working in the factories, it seems like they can get all the overtime they want,” says Windsor mortgage broker Brad Carr. “If you’ve got a skill or you’re an engineer, you can kind of write your own ticket right now.”
Mr. Carr has also seen an increase in out-of-town investors looking to buy property in what remains one of Canada’s most affordable urban markets.
Yet there are plenty of reasons to be cautious about whether the jump in home sales in Windsor is really a sign that the city’s economy is in the midst of a resurgence. The housing market has seen its share of false starts in the past. Commercial and industrial real-estate sales have picked up, Mr. Barbesin says, but not nearly at the same pace as the housing market, and the city still faces a glut of vacant office space. “It’s certainly not that more jobs have come into town,” he says.
Bank of Montreal senior economist Robert Kavcic points out that home listings have fallen to among the lowest in a decade. The shortage of homes for sale is helping to drive up resale prices.
Still, Mr. Carr thinks this time the housing market may have finally started to turn a corner. “Windsor went through its real-estate correction years ago and now I think we’re one of the safer markets in Canada,” he says.
A motorist passes houses in Squamish, B.C., on Sunday July 19, 2015.
When Matthew Spitzer bought his two-bedroom condo in Squamish, B.C., three years ago, the home had been in foreclosure for months and Mr. Spitzer snapped it up for a bargain. But as he found out when he sold his condo last month just days after putting it on the market, Squamish is quickly losing its reputation as the small, sleepy pit stop on the road between Vancouver and Whistler.
As detached homes in Vancouver skyrocket out of reach of most buyers, young families are venturing further afield in search of affordable housing. Many are making the drive north along the Sea to Sky Highway to Squamish.
Home sales in the community of nearly 18,000 were up 58 per cent in May compared to last year, the local real-estate board reported. Average resale prices in the community have jumped 10 per cent to nearly $450,000, while detached homes have soared more than 20 per cent. Much of that growth is being fuelled by buyers trading their condos in Vancouver for detached homes in Squamish.
In Valleycliffe, a family-friendly neighbourhood that’s at the first highway exit toward Vancouver, prices have soared by $100,000 in the last two months alone, says Squamish realtor Brian Loverin.
For an extra $40,000, Aaron Hall and his young family traded a townhouse in Burnaby for a 2,200-square-foot, four-bedroom house in Squamish with a view of the mountains and a swimming hole in the backyard. “It’s still affordable for a young family who doesn’t own anything to try to get into the market,” said Mr. Hall, whose children are 1 and 3.
His commute to Vancouver, where Mr. Hall works in the film industry and his wife Beki is a pharmacy technician, takes 40 minutes and is traffic-free. “It’s probably one of the nicest commutes in the world,” he says. “I literally get goosebumps driving home, with the sun setting over the islands and ocean.”
Upgrades to the Sea to Sky Highway for the 2010 Olympics and a new gondola that opened last year are attracting both commuters and tourists. Proposals for a new liquefied natural gas terminal and a four-season resort, while controversial, bring the promise of new jobs and more visitors.
Already the community is experiencing a building boom, including homes with Vancouver-style prices. In Crumpit Woods, a new subdivision marketed toward high-end buyers, builders are marketing homes with $1-million price tags.
All that change, coupled with a hot real-estate market, convinced Mr. Spitzer, 28, that it was time to move on. He recently bought a house in Agassiz, B.C., nearly three hours away. “I was able to get a three-bedroom with a yard for $300,000, and you really can’t find that here any more.”
Construction worker George Stanley lays down floors on a new condo development in Edmonton, Alberta, on Wednesday May 23, 2007. (John Ulan for The Globe and Mail)
Unlike its sister city, Calgary, Edmonton’s housing market hasn’t felt quite the same pinch from falling oil prices. Sales rose 2.4 per cent in June and prices were up 2 per cent from a year earlier.
Yet while home prices have so far avoided a crash, Edmonton has witnessed a different type of housing-market phenomenon this year: a boom in rental-apartment construction.
Developers began construction on nearly 4,300 multifamily homes in the first three months of the year, almost three times more than during the same period last year. By April, there were more than 2,600 rental apartments under construction in Edmonton. In total, the city is expected to see 10,000 new rental apartments and condos built this year and last.
Many were conceived years ago, when oil prices were high and Edmonton had one of the lowest vacancy rates in the country.
Between 2009 and 2014 the vacancy rate plunged from 4.9 per cent to just 1.7 per cent. That pushed up rents in Edmonton faster than any other city in Canada last year, real-estate brokerage Colliers International said, with average rents rising $89 each month. By late last year, the city was tied with Toronto as the country’s second-most expensive housing market, behind only Calgary and Vancouver.
“Last year I’d personally get phone calls from high-school [friends] I haven’t seen for over 30 some years, panicking to find apartments for their children in Calgary and Edmonton going into university,” Sam Kolias, CEO of Boardwalk Real Estate Investment Trust, a major Alberta landlord, told analysts in May.
Soaring rents caught the attention of institutional investors, particularly pension funds, many of whom were looking to bulk-up their rental portfolios. Land was cheaper in Edmonton than in Calgary and new developers rushed into the market, while others shelved plans to build condos and partnered with investors to build rentals instead.
There were nearly more than 2,200 new rentals built in the city last year, higher than in previous years but a small drop in the bucket of the city’s 67,000-unit rental-apartment universe, said Boardwalk president Rob Geremia. Rental construction can take decades before it turns a profit, so most landlords are in the market for the long-term, he says.
Still, the surge of new supply, coupled with the province’s economic slowdown, have taken the steam out of Edmonton’s rental market. The vacancy rate rose from 1.7 per cent last fall to 2.4 per cent today. Rental growth has slowed down and apartments are taking longer to fill. Boardwalk has begun offering incentives such as smaller security deposits and discounts off rent to attract new tenants, which has helped keep its occupancy rate in the city at 98 per cent.
“It’s real tough right now, but that’s life,” Mr. Geremia says. “You have to develop and you can’t always have a good time. The real question that we need to answer – and no one can – is how long oil prices will stay where they are.”
When Finance Minister Joe Oliver announced that the Harper Conservatives had balanced the federal budget for the first time in eight years, many economists and voters cheered. But budget cuts have been bad news for those looking to sell their homes in the national capital’s moribund housing market.
“It’s actually a bit of a conundrum,” Brian Johnston, chief operating officer of Mattamy Homes, one of the city’s biggest home builders, said in a May interview. “I think Ottawa is very much a one-horse town, the federal government, and the federal government is basically taking the view that we’re not going to allow government to grow.”
The federal public sector shed nearly 25,000 jobs between 2011 and April of last year, Treasury Board records show. The office of the Parliamentary Budget Officer has estimated Ottawa is poised to shed another 9,000 public-service jobs by 2017.
Many of those job cuts have been centred in Ottawa, helping to put a chill over the city’s housing market. New home sales plunged 25 per cent in May compared to a year earlier, according to building-industry analyst PMA Brethour Realty Group. Resale home prices have fallen more than 6 per cent since last August, although the market rebounded in May and June.
Public-sector relocations, which account for roughly 10 per cent of the city’s home-sales transactions, dried up last year, driven by fewer transfers in and out of the city for National Defence and RCMP employees, says realtor Gord McCormick. “Last year was a very tough year for the government relocation market and that definitely had an impact on us,” he says.
The city is also grappling with a surge in newly built condos that have been flooding the market, which has kept condo prices flat over the past year. Mr. McCormick estimates it would take more than a year to sell off all the condos now listed on the market.
Ottawa has witnessed the same condo boom being felt in cities like Toronto and Vancouver, but without the high levels of immigration to support it. Developers have since shifted plans to build smaller in order to appeal to a more price-conscious buyer.
When federal housing watchdog Canada Mortgage and Housing Corp. warned that several Canadian housing markets were at risk of a correction, Toronto, Vancouver and Calgary weren’t on the list. But Regina was.
The city’s housing market has benefited enormously from soaring prices for oil, potash and other commodities, sailing through the global financial crisis comparatively unscathed. Prices leapt more than 50 per cent between October, 2006, and June, 2008, alone. Real-estate speculators moved in, snapping up derelict buildings in the city’s impoverished North Central neighbourhood by the dozen, often leaving them vacant while waiting for prices to keep on soaring. “I remember thinking at the time that these aren’t going to come back on the market at the same price,” says Regina real-estate broker Mike Duggleby.
That fuelled a spike in new construction, particularly among condos aimed at first-time buyers, many of which were originally planned during the boom years but came onto the market just as prices began slowing over the past few years.
The number of homes listed for sale has hit a 20-year high, says Gord Archibald, chief executive officer of the Association of Regina Realtors. Average home prices are around 10-per-cent lower than peak levels and have fallen 3 per cent since last June.
Regina’s economy has been hit by slumping prices for oil and potash. The city is home to a large refinery and international oilfield-services giant Halliburton Co. announced in February it was closing its Regina office.
That has hit the rental market particularly hard. Vacancy rates have jumped across Saskatchewan from 3.3 per cent last year to 5.6 per cent this year. For rental landlord Boardwalk Real Estate Investment Trust, first-quarter results in Regina “weren’t pretty,” said president Rob Geremia. “We’re now seeing pretty major corrections in Regina.”
Some think the market reaction is overwrought. Regina still boasts an enviable 4.6-per-cent unemployment rate, higher than in previous years but still stronger than many other Canadian markets.
Realtor James Wruth figures buyers have been scared off by the swift change in the market from bidding wars to a surplus of unsold listings. “The fact that buyers have plenty of homes to choose from, lower interest rates and lower prices, but still aren’t making an offer, makes me scratch my head sometimes,” he says.
Chart data sources: Canadian Real Estate Association, Canada Mortgage and Housing Corporation, Real Estate Board of Greater Vancouver