NATIONAL OVERVIEW
Residential real estate activity showed unprecedented strength during the first half of 2006, despite earlier forecasts for moderating demand. Double-digit increases in housing prices were reported in Vancouver, Victoria, Kelowna, Edmonton, Calgary, Winnipeg, and Halifax while more modest gains occurred in Saskatoon, Regina, Toronto, Hamilton, Ottawa, Kitchener-Waterloo, Montreal, Saint John, and Charlottetown. Average price appreciation shattered existing benchmarks, with both Calgary and Edmonton reporting increases of 40 per cent and 25 per cent respectively. Nationally, the number of homes sold continued to rise, with sales matching last year’s record-breaking pace.
Most of the activity was spurred by an unusually strong economic start to 2006. In the second quarter, however, GDP growth subsided – with declining exports, increasing imports, and overall weakness in residential investment the major culprits responsible for the softening. Healthy domestic demand, rising consumer expenditures, and nonresidential business investment helped to offset some of the impact, but the weaker than expected economic growth prompted the Bank of Canada to place interest rates on hold in September in anticipation of a slowdown.
In spite of softer GDP growth for the remainder of 2006, underlying economic fundamentals in Canada remained solid. Unemployment remained low. Income levels continued to climb. The Canadian dollar remained strong, hovering close to 90 cents U.S. in 2006. After peaking at close to $80 U.S. per barrel, oil prices fell to $60 U.S. by early fall and are forecast to remain relatively stable throughout the remainder of the year and into 2007.
Residential housing sales are expected to moderate in 2007. Nationally, 462,000 properties are forecast to change hands next year, making 2007 the third best year on record. After four years of double-digit gains, average price is predicted to climb a modest five per cent to $290,000 by year-end 2007, up from $275,000 one year ago.
ONTARIO
Hamilton-Burlington
First-time buyers were the force behind peak housing sales in Hamilton-Burlington this year, pushing the number of homes sold past the 13,700 threshold. Demand for single-detached homes in both Hamilton and Burlington reached new heights, despite an across the board increase in inventory levels. Severe shortages of listings were reported in the $180,000 to $250,000 price range through much of the year. Bungalows were also in short supply.
Equity gains also played a role in increased activity, prompting move-up buyers to enter the housing market, particularly in Burlington where they fueled sales of homes priced in excess of $500,000. The upper-end has seen a marginal increase in year-over year sales, but purchasers in this exclusive segment of the market continue to demand the ‘complete package’ or ‘turnkey product’ when it comes to buying a home. Multiple offers prevailed throughout much of 2006, especially on affordably-priced product in areas like Hamilton Mountain. Overall, the sales to listing ratio hovered at 63 per cent. Days on market, at 47, were on par with last year’s levels. Given a continuation of current economic fundamentals, residential sales should climb one per cent over the 13,565 units reported one year ago. Average price is forecast to appreciate eight per cent to $248,000 by year-end.
Much is happening in Hamilton-Burlington from an economic standpoint. A new carrier based out of Hamilton will be offering flights to international destinations such as Scotland, England and Ireland; the Red Hill Expressway is finally nearing completion; Lakeport is intensifying its Harbourfront facility with a little help from the Hamilton Port Authority; a high-end business park is currently under construction; and discussions are underway linking Hamilton by lake ferry to major provincial centres such as Toronto and Kingston. Hamilton’s downtown core recently sprung to life, with a proposal to restore the Royal Connaught to its original splendour. Commercial and retail growth and revitalization are planned for the core. An increase in the level of Go Train service to Hamilton would serve to further bolster the residential real estate market.
Immigration is a factor in the marketplace, with many new immigrants settling in Hamilton-Burlington over the past 10 years. Economic diversification has also served Hamilton well, with the city no longer as dependent on its steel companies for employment.
Today, McMaster – both the University and Hospital – are the city’s largest employers. With positive economic performance expected to remain unchanged, the number of homes sold in the Hamilton-Burlington area are forecast to climb another one per cent to 13,800 units in 2007. Housing values should experience continued upward momentum, rising three per cent to $255,400 by year-end.
Kitchener-Waterloo
After an unusually strong start to the year, Kitchener-Waterloo’s residential real estate market has stabilized at more sustainable levels of activity. Balanced market conditions now prevail, with multiple offers the exception, rather than the rule. By year-end 2006, sales are forecast to experience a slight decline of about six per cent to 5,800 units, down from 6,147 one year ago. Prices are expected to climb close to nine per cent to $240,000, up from $220,511 in 2005.
Vendors who list their homes at fair market value are generally selling within 55 days, up from 47 one year ago. Purchasers are taking their time in selecting properties, thanks to a good supply of inventory currently listed for sale. Move-up buyers are a force in today’s marketplace, fueling demand for product priced from $300,000 to $350,000, while first-time buyers are largely satisfied.
Bungalows on 50 ft. lot sizes are particularly coveted by retirees in the area, prompting more building out of town in areas like New Hamburg and Baden. Although sales of executive homes have tapered, the number of homes sold at $1 million plus has risen 165 per cent (three sales to eight). Small-to-mid size investors are also active in the market, driving demand for higher-density product.
Many are tearing down existing properties, rezoning for multi-unit residential, and constructing apartments with 16 to 20 units, particularly in areas in close proximity to the university.
Kitchener-Waterloo has one of the lowest unemployment rates in the province, as well as one of the highest population growth rates in the country – growing more than twice the national rate. Known as Canada’s technology triangle, Waterloo is home to 224 technology companies and another 404 companies providing related services. The diverse mix of manufacturing and service companies, a well-educated population and effective economic development collaboration among academia, business and government has made the area a success. However, layoffs at BF Goodrich earlier this year had an impact on the local economy, despite its diversity. Jobs created at the new Toyota plant in Woodstock may help to offset the full effect of the closure.
Incremental interest rate hikes throughout the year had little impact on residential real estate activity during 2006 and 2007 is expected to be no different. Concerns over the higher Canadian dollar and its effect on manufacturing are weighing heavily in the marketplace. Increasing inventory levels – about 10 per cent – will hold price appreciation in check in Kitchener-Waterloo. New construction is forecast to slow next year, especially in areas like Elmira, Heidelberg and St. Agagtha where local townships are struggling with subdivision expansion and preserving valuable farmland. In 2007, the number of homes sold in Kitchener-Waterloo is predicted to dip to 5,500 units, an eight per cent decline from 2006 levels, while average price is expected to hold the line at $240,000.
Greater Toronto Area
The threat of rising interest rates prompted homebuyers across the Greater Toronto Area to enter the housing market en masse during the first and second quarters of 2006. Over 45,000 homes sold during the first six months of the year, a two per cent increase over historic levels reported during the same period one year ago.
However, the prospect of falling interest rates during the latter half of the year created a pause in the market, throwing sales off last year’s blistering pace. By year-end, sales are forecast to fall slightly short of 2005 levels, weighing in at 80,000 units, down from just over 84,000 one year ago. Average price is expected to climb five per cent to $353,000, up from $335,907 in 2005.
Although fewer multiple offers occurred in the fall, strong demand for singledetached, semis, and condominiums continued to exist at all price points. Condominiums represented approximately 30 per cent of the total number of homes sold, up from about 29 per cent one year ago.
Sales of luxury homes priced over $1 million jumped close to 20 per cent year-over-year, with Forest Hill, Rosedale, Lawrence Park, Kingsway, Bridle Path, Hoggs Hollow, and York Mills experiencing extraordinary activity. Clearly, the strong upward momentum, combined with solid economic performance, served to bolster activity across the board.
Developing trends in the marketplace included an influx of purchasers from the 905 area code who were no longer willing to commute to jobs in downtown Toronto. The trend sparked an upswing in demand for singledetached homes, semis, and condominiums in the city core. Overall days on market dropped to 33, down from 34 in 2005. The sales to list price ratio remained unchanged at 98 per cent. Tight market conditions prevailed in the city proper, despite an increase in inventory levels.
Neighbourhoods like the Beach, the Danforth, Riverdale, Swansea, High Park, Roncesvalles, Bloor West Village, South Hill, Yorkville, Summerhill, Lytton Park, John Ross Robertson, Cricket Club, Wanless Park, Rosedale, Lawrence Park,and Leaside continued to hold their value, with each reporting yearto-date sales to list price ratios in excess of 100 per cent.
Consumer confidence levels in the GTA were strong throughout 2006, buoyed by an economy running at near full employment. Retail sales rose marginally. Commercial construction is well underway, with three new office towers scheduled for completion.
Housing starts were down about five per cent, but lack of available building land, soaring development costs, and a shortage of trades have all contributed to softer sales. Capital expenditures planned for the city include a $670 million extension of the Toronto subway system into York Region.
Concerns over a faltering US economy, combined with inflationary worries, have softened the Bank of Canada’s stance on interest rate hikes. With none expected for the remainder of the year, and some experts predicting further cuts in 2007, the residential real estate market may yet resurrect itself. That said, fewer homes are expected to change hands in 2007. Sales are forecast to hover at 78,000 units, down from 80,000 in 2006, but on par with 2003 levels. Price appreciation is predicted to be in line with last year, up another five per cent to $371,000, an $18,000 jump over 2006.
Ottawa
Strong economic fundamentals, underpinned by a high-tech sector in the midst of an upswing, supported a robust residential real estate market throughout much of 2006. First-time buyers were particularly active, with many taking advantage of increased inventory levels and stable interest rates. Entry-level purchasers continued to represent the lion’s share of activity in the marketplace, despite a 16 per cent decline in sales under the $200,000 price point. The rising cost of freehold properties failed to deter eager purchasers who turned to affordably-priced condominium apartments and town homes as a financially feasible alternative.
Condominium sales were up significantly over one year ago as a result – with one in every five sales in the Ottawa area a condominium in 2006. Days on market for a condominium dropped to 42 in 2006, down from 44 days one year ago, while days on market for a freehold property rose to 42 days, up from 41 in 2005. Move-up buyers, especially those seeking properties priced over $400,000, were also responsible for the upswing in home sales.
Equity gains in recent years prompted many to trade-up to larger homes and/or better neighbourhoods. Multiple offers were not uncommon throughout the year, especially in older, established communities. Although brisk early in the year, estimates place new housing starts slightly below last year’s levels in 2006. A decline in housing starts could bolster existing home sales in 2007. Home sales in the nation’s capital are forecast to breakthrough the 14,000 benchmark by year-end, rising approximately six per cent over the 13,300 units sold in 2005, while average price is expected to escalate four per cent to $258,000 by the end of 2006, up from $248,358 one year ago.
Ottawa’s diverse economy continues to play a key role in the overall health of the residential housing market. The three basic types of businesses found in the Ottawa region – export companies serving markets all around the world; regionally focused companies serving Ottawa residents and businesses; and a rural economy are firing on all cylinders. More than 1,500 companies are involved in key growth sectors such as telecommunications, software, photonics, semiconductors, defense and security. The region is also benefiting from the entry of new seed industry sectors such as biophotonics, environmental technologies, electronic pay systems, and micro electromechanical systems (MEMS). However, recent uncertainty in the public service sector may impact real estate sales in 2007.
Should concerns over government streamlining diminish, sales activity in the Ottawa area is expected to remain on par with 2006. Average price is expected to press forward, rising four per cent to $268,300 in 2007, up from $258,000 one year ago.
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