Residential outlook for 2012 positive for both home sellers and landlords right across the Prairies

BY DAVE HUSDAL, CALGARY
GEOFF KIRBYSON, WINNIPEG

After a slower start to 2011, housing starts are ratcheting upward in Alberta's two largest cities.

Calgary's housing starts were up in August 2011 over the same month a year ago - marking the first month in a year that single-family housing starts have increased over the previous year.

Overall, according to Canada Mortgage and Housing Corporation data, Calgary area housing starts were up 44 per cent to 1,237 units in August 2011, from 858 a year ago.

While that's a positive trend for builders and developers, year-to-date housing starts in the region were off 18 per cent for the first eight months of 2011 to 5,425, down from 6,641.

Single-family starts comprised 3,350 units, or a little more than 61.7 per cent of starts.

Things were also looking up in the Edmonton region in August.

Edmonton area housing starts were also up in August, from 690 starts for the month last year, to 805 units this year. That 17 per cent hike is below Calgary's, but still positive.

Year-over-year housing starts were still down in the capital region, falling 16 per cent from 7,018 last year to 5,890 in 2011.

Multi-family starts have been the key driver this year in Edmonton, according to CMHC. They've been running almost even with 2010, with 2,691 recorded for the first eight months of this year. That's close to 46 per cent of all Edmonton area housing starts.

"Notable gains in apartment construction have pushed year-to-date multi-family starts to just nine units shy of the production pace last year," notes CMHC's Edmonton area housing update for September.

Colliers International predicts the demand for new and existing apartments in the Edmonton market will be healthy for sellers in 2012.

"When quality product does come to market, the result is usually a multiple bid scenario. There simply isn't enough product to satisfy the appetite out there," Colliers says in its latest Edmonton multi-family update. "If there's any advice we can offer owners contemplating sale - if your building is well maintained, the number of interested buyers will significantly increase."

Housing starts

While 2011 housing starts are down overall in Edmonton and Calgary, both markets have seen prices of new homes rise. In Calgary, for example, the median selling price for a new single-family hit $480,271 in August 2011, up 9.6 per cent from August 2010.

CMHC pegs the price increase in Edmonton much lower, only 4 per cent from August 2010 to August 2011. The latest median price for Edmonton was $452,424, about 5.8 per cent below Calgary.

Housing starts in Edmonton will rise 11 per cent in 2012 to 10,100 units, compared to 9,100 units this year. Nearly 4,000 of these new homes will be multi-family units.

Calgary will post only 8,500 housing starts this year, but will see an 11 per cent surge in 2012, to 9,400 new homes, CMHC suggests. The upturn in both cities is based on stronger job and immigration growth and persistently low mortgage rates.

The average new detached house price in Calgary is expected to increase 1.3 per cent next year to $548,000, and up even more modestly in Edmonton, to $520,000.

Vacancy rates

Total rental units started in the Calgary market for the first eight months of 2011 hit only 49. In stark contrast, CMHC identified 604 starts for the rental market in Edmonton for the first two thirds of 2011.

The forecast is for Calgary's rental vacancy rate to dip slightly next year to 3 per cent, and level at the same rate in Edmonton.

The tighter vacancy rate will mean higher average rents in both cities - Alberta has no rent controls - and the end of rental incentives that had been common this year. Good news for landlords, but tougher for tenants.

Saskatoon

One of the brightest spots for the residential sector in all of Western Canada, Saskatoon will see an 18 per cent increase in housing starts this year and an 11.6 per cent increase in resale housing.

Next year, while still strong, does not look so rosy. The forecast is that home builders, facing competition from the resale sector and buffeted by job losses, will start work on 2,500 homes in 2012, down about 11 per cent from this year. The average price of a new detached house is expected to rise only 1.4 per cent next year, to $388,000.

There is a small overhang forming in Saskatoon's condo market, with an estimated 1,300 units finished as of August, a 66 per cent increase from a year earlier.

"Builders will scale back and focus on selling units currently under construction," according to CMHC's Saskatoon office. CMHC expects multi-family starts to fall 21 per cent in 2012 to 950 units.

A wild card is takeup on a Saskatoon City incentive that provides assistance to new home buyers, which resulted in 176 new home sales in the past two years. If the plan becomes heavily subscribed it could boost demand for lower-cost condominiums and townhomes.

In the resale market, 3,800 homes are forecast to sell next year, slightly lower than in 2011. Average resale prices should continue to rise, advancing 2.1 per cent in 2012 to $314,000.

Saskatoon continues to look like a strong market for landlords over the next year. The rental vacancy rate will rise from 3.6 per cent this year to 3.8 per cent in 2012, according to CMHC, but average rents are expected to climb 2 per cent.

Regina

Housing sales in Saskatchewan's capital will reach 3,700 units next year, up 1.4 per cent from 2011 and among the best years in the city's history The average detached house price will also surpass the previous record set this year, as prices are predicted to increase 3.3 per cent to $285,000 in 2012.

Starts of new homes, coming off a record-setting pace in 2011 - the highest level since 1987 - will dip about 5 per cent next year, with 800 detached houses and 1,425 multiple units breaking ground according to CMHC. Still, this is a very strong showing for Regina, especially since the average new house price is expected to increase nearly 4 per cent to $490,000.

Expect Regina's apartment vacancy rate to be around 2 per cent next year, with the average two-bedroom apartment renting for $950 per month. Job growth is driving both rentals and home sales, with a projected 4.9 per cent unemployment rate in Regina next year, the best of any urban centre in Canada.

Winnipeg

Winnipeg's rental vacancy rate will remain in the 1 per cent range in 2012, CMHC says, which contines to rank it among the lowest in the country. The reasons are an improving economy, higher in-migration and job creation, plus the loss of rental units to condo conversions over the past few years.

Rental construction has increased, with 490 apartments started in the first eight months of this year, but it will be awhile before that makes a dent in the tight vacancy rate.

Winnipeg is under provincial rent controls, which caps rental increases next year to 1 per cent, but new units are exempt from the legislation. As a result, CMHC is forecasting average rents to spiked 4.5 per cent this year and a further 3 per cent in 2012 to around $900 for a two-bedroom apartment.

Total new home starts in Winnipeg are forecast to reach 3,750 units in 2012, maintaining a strong pace seen since 2009. The average new house price is expected to rise to $409,000.

As for the resale market, sales are forecast to increase modestly from this year to 12,200 in 2012, with the average resale price at $250,000 next year, up about 4 per cent from 2011.

Ralph Fyfe, president of Winnipeg Realtors and an agent with Century-21 Bachman and Associates, says low house prices, low mortgage rates and consumer confidence are setting the stage for another strong resale market next year in Manitoba's biggest city, "We are coming off the best sales year since 2007," he said.

"Winnipeg is still a bargain. If those conditions remain in place, we're in for a very healthy market, in 2012," Fyfe said.

from Western Investor December 2011