With 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.
Home Sales In Thousands Home Sales: Total from January to December every year Source: Conference Board - CREA 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.
Average Home Price In Thousands Average Home price as of December every year Source: Conference Board - CREA 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.
Home Prices by Province 7 out of 12 provinces experienced an increase in home price Home Price Direction (Year-Over-Year Change) N.T $362K YK. $202K B.C. $429K Alta. $328K Sask. $220K Man. $180K Ont. $280K Que. $213K N.L $206K N.S. $182K N.B. $142K Average Home price as of December every year Source: Conference Board - CREA P.E.I. $161K Prices Increased Prices Decreased
Inventory Sales to New Listings Ratio Inventory as of December every year Source: Conference Board - CREA 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.
Mortgage Rates 5-Year Fixed Mortgage rates as of January every year Source: Bank of Canada 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%.
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.
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.
Quarterly Affordability Source: Royal Bank of Canada 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%
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.
For townhomes, affordability conditions improved in all of the Canadian regions as well. Areas that experienced most of the correction are Saskatchewan and Calgary.
Quarterly Affordability Source: Royal Bank of Canada 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%
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%