Insights Into the Apartment Condominium Market in Eight Large Canadian Metropolitan Areas. Metropolitan Condo Outlook Summer 2012

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1 Metropolitan Condo Outlook Summer 212 Insights Into the Apartment Condominium Market in Eight Large Canadian Metropolitan Areas Economic Performance and Trends

2 Metropolitain Condo Outlook: Insights Into the Apartment Condominium Market in Eight Large Canadian Metropolitan Areas by Jane McIntyre and Robin Wiebe About The Conference Board of Canada We are: The foremost independent, not-for-profit, applied research organization in Canada. Objective and non-partisan. We do not lobby for specific interests. Funded exclusively through the fees we charge for services to the private and public sectors. Experts in running conferences but also at conducting, publishing, and disseminating research; helping people network; developing individual leadership skills; and building organizational capacity. Specialists in economic trends, as well as organizational performance and public policy issues. Not a government department or agency, although we are often hired to provide services for all levels of government. Independent from, but affiliated with, The Conference Board, Inc. of New York, which serves nearly 2, companies in 6 nations and has offices in Brussels and Hong Kong. Publication The Conference Board of Canada* Published in Canada All rights reserved Agreement No *Incorporated as AERIC Inc. Forecasts and research often involve numerous assumptions and data sources, and are subject to inherent risks and uncertainties. This information is not intended as specific investment, accounting, legal, or tax advice. About Genworth Financial Canada Genworth Financial Canada, a subsidiary of Genworth MI Canada Inc. (TSX:MIC), has been the leading Canadian private residential mortgage insurer since 199. Known as The Homeownership Company, it provides default mortgage insurance to Canadian residential mortgage lenders that enables low-down-payment borrowers to own a home more affordably and stay in their homes during difficult financial times. Genworth Financial Canada combines technological and service excellence with risk management expertise to deliver innovation to the mortgage marketplace. As of June 3, 212, Genworth Canada had $. billion total assets and $2.8 billion shareholders equity. Based in Oakville, Ontario, Genworth Canada employs approximately 26 people across Canada. Additional information about Genworth Financial Canada is available at Preface This report from The Conference Board of Canada and Genworth Financial Canada offers an in-depth analysis of the condominium market for eight large Canadian census metropolitan areas (CMAs). The report covers a wide range of condominium market statistics, such as starts, completions, absorptions, and prices. The main goal of this publication is to analyze the recent trends in the condo market in each of the eight CMAs, as well as where each of the eight markets is heading over the next five years. The eight census metropolitan areas covered are Québec, Montréal, Ottawa, Toronto, Calgary, Edmonton, Vancouver, and Victoria. This report is published twice a year, in summer and winter.

3 Contents Overview Metropolitan Insights Québec Montréal Ottawa Toronto Calgary Edmonton Vancouver Victoria Definitions and Concepts Standard Geographical Classification (SGC)

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5 Overview Canadian housing and condominium markets are stalked by twin fears that low interest rates are prompting Canadian homebuyers to engage in a debt-fuelled shopping spree and bidding up house prices unsustainably. Policy-makers fear that the inevitable interest rate hikes over the medium term could make these debts unmanageable. Meanwhile, a significant correction in house prices might devastate household finances and induce recession. Markets in Toronto and Vancouver are said to pose particular risks. Canada s central bank and its Department of Finance face a dilemma. Boosting interest rates, a common remedy for an overheated economy, risks increasing the value of the Canadian dollar, thus posing additional problems for the beleaguered manufacturing sector in Central Canada. Instead, policy-makers have repeatedly warned against over-indebtedness and have tightened mortgage rules on four occasions. The latest squeeze, in mid-june this year, reduced the maximum mortgage amortization period to 2 years, limited equity takeout to 8 per cent of a house s value, disallowed taxpayer-insured mortgages on homes costing over $1 million, and trimmed the maximum allowable ratio of debt-servicing costs to income. Meantime, continued deterioration abroad presents a major risk. The U.S. economy remains lacklustre, financial crisis grips Europe, and Chinese economic growth is slowing. Canadian housing markets thus appear destined to correct, but we think the correction will remain relatively mild, thanks to decent employment growth and continued low interest rates. But regional cracks will Apartment Condo Indicators Starts Resale sales Resale price ($)* f 213f f 213f f 213f Québec 2,34 1,36 1,41 1,792 1,92 1,983 2,66 214,76 219, Montréal 12,329 8,479 7,14 12,762 13,333 13,78 26,824 26,94 272, Ottawa 1,327 1,349 1,213 1,741 1,746 1, , , , Toronto 19,13 18,724 1,689 22,96 22,636 22,786 3,946 34,7 312, Calgary 2, 2,373 2,97 3,42 3, 3, ,34 239,44 246, Edmonton 1,369 1,133 1,98 2,83 2,336 2, ,678 28,649 21, Vancouver 7,136 6,6 6,94 12,836 12,3 12,41 373,77 3,46 348, Victoria ,648 1,622 1,7 287, ,72 284, *Average resale prices are used for Québec and Montréal; median resale prices are used for the rest of the metropolitan areas. Resale and average prices in Montréal and Québec include all condominium styles, not just apartments. Italics indicate percentage change. Sources: The Conference Board of Canada; CMHC Housing Time Series Database; Canadian Real Estate Association; Quebec Federation of Real Estate Boards.

6 2 Metropolitan Condo Outlook Summer 212 appear. Calgary, Ottawa, and Québec look set to fare best. Conditions are weak in both major British Columbia markets. In Vancouver, slowing Chinese demand probably represents a larger threat to housing prices than poor affordability. In Toronto, the condominium market is slowing, but this will be gradual, not disorderly. Over the next few years, a growing population in all eight of our areas will provide vital demographic support. Forecast advances for 212 range from. per cent in Victoria to 2. per cent in Calgary. And, while rising prices for single-detached homes are increasingly driving first-time buyers toward condominiums, retirees aged or more also remain heavy condominium consumers. This cohort increased its share of the total population at least four percentage points in the decade ending 211 in all of our eight cities, led by a six percentage point gain in Québec. Unsurprisingly, Victoria has the oldest population, with roughly a third of its population now aged at least. Economic conditions remain decent. Gross domestic product is expected to advance in all eight cities for the third straight year in 212. A 3. per cent GDP advance in Calgary will set the pace, followed closely by 3.2 per cent in Edmonton. But GDP will rise only 1.6 per cent in both Victoria and Ottawa. Employment expectations vary. Calgary also leads here, with 3.1 per cent job growth predicted for 212, while Montréal s labour market will be flat. A forecast drop in the five-year mortgage rate to.2 per cent in 212 from.4 per cent in 211 is also positive for condominium markets. Condominium sales were mixed in 211. Volumes fell 1 per cent in Victoria and by lesser percentages in Québec, Ottawa, and Vancouver. But sales rose roughly per cent in each of Toronto, Calgary, and Edmonton. For 212, Calgary sales will keep rising, but Toronto and Vancouver are expected to see sales drop 1 per cent and 6 per cent respectively, while Edmonton s will decline by 1 per cent. This year s forecast leader will be Québec, with a 7 per cent rise. Active listings in 212 are forecast to increase 38 per cent in Calgary, while Montréal, Québec, Toronto, and Vancouver will also see hikes. Such supply increases are forecast to trim the sales-to-active-listings ratio in all of these cities. The ratio will also drop in Edmonton, despite easing listings. Declining supply in Victoria and Ottawa will fuel the only two increases in the sales-toactive-listings ratio expected this year. Buyers markets are forecast everywhere this year except Calgary and Toronto, which should be balanced. Buyers conditions will foster only weak price growth in 212, although the median price in Ottawa is expected to jump 6. per cent. The median condominium price in Toronto is forecast to rise 1.3 per cent, its slowest growth since But the median price is forecast to drop per cent in Vancouver. It will post declines in Victoria and Edmonton as well, although the decline will not be as pronounced as in Vancouver. On the new construction side, absorption of new condominium apartments is forecast to fall only in Edmonton in 212, although only tiny increases are expected in Québec and Ottawa. Calgary absorptions are expected to more than double, but remain well below their boom-era level of before the recession. Rising new unit take-up is predicted in both Vancouver and Toronto. Despite higher absorptions in Toronto, its volume of completed and unoccupied units is expected to increase 2 per cent this year. But these inventories remain well below those of the early 199s and are expected to ease in 213. In Vancouver, unsold stocks are predicted to rise only 6 per cent and also remain below the problematic mid-199s levels. Inventories in Montréal are projected to rise significantly for a second straight year. Given the higher stocks, apartment condominium starts are forecast to fall in five markets. By contrast, Calgary is expected to see starts increase 16 per cent, but to nowhere near boom-era levels. Easing prices in Vancouver are forecast to cut mortgage carrying charges by 6. per cent in 212, the largest drop among our eight cities. Toronto, Calgary, Edmonton, and Victoria are also expected to see declines. Vancouver remains our least affordable market both in absolute and relative terms (when analyzed as a share of local incomes). Absolute carrying charges are the lowest in Edmonton and Québec. Calgary is our most affordable city when analyzed relative to local incomes.

7 Summer 212 Metropolitan Condo Outlook 3 Québec Share of Population by Age Cohort f Sources: The Conference Board of Canada; Statistics Canada. A healthy first quarter will help boost unit sales in Québec s resale apartment condominium market in 212. However, the new home market is expected to take a break, as starts of condominium units have been brisk recently, and developers remain occupied with the large number of units under construction. Sales in Québec s resale apartment condominium market recovered quickly from their short-lived downturn in 28. But listings stayed low, keeping the sales-toactive-listings ratio high, at over 18 per cent, and helping to keep price growth strong, at an average of 7. per cent per year over 28 and 29. Although unit sales then dipped.8 per cent in 21 and another.4 per cent in 211, partly because higher taxes kept buyers at bay, the level of activity remained healthy, at around 1,8 units sold. But sellers were finally returning to the market. Active listings rose 3.2 per cent in 21 and a whopping 4.6 per cent in 211. Accordingly, the sales-to-active-listings ratio dropped to 12.4 per cent last year its lowest level since 2. In turn, growth in apartment prices slowed from 9.6 per cent in 21 to 3.8 per cent in 211, the smallest gain in five years. More modest price increases helped to spur renewed growth in unit sales of apartment condominiums through the last quarter of 211 and the first quarter of this year. Overall, unit sales are expected to rise by 7.4 per cent Apartment Condo Construction (starts, units; share, per cent) Apartment condo starts (left) Condo starts as a share of multiple starts (right) 2, 2, 4 1, 3 1, f 1f Sources: The Conference Board of Canada; CMHC Housing Time Series Database. in 212, topping 1,9 units for the first time. Active listings are forecast to increase as well, also thanks to continued strong growth through the first quarter. This will push the sales-to-active-listings ratio below 12 per cent, thus keeping the gain in average apartment prices to a modest 4.4 per cent this year. Over 213 and 214, the market will be driven by stable population and economic growth. However, by 21, rising interest rates will begin to slow demand once more. At the same time, sellers, discouraged by the more moderate price growth in recent years, are expected to reduce active listings.

8 4 Metropolitan Condo Outlook Summer 212 Affordability and Condo Sales (share, per cent; sales, units) Share of household income spent on mortgage (left) Existing apartment condo sales (right) 2 2, 16 2, 12 1, 8 1, f 14f 16f Sales to Active Listings and Price Change Sales-to-active-listings ratio (left) Average price growth (right) f 1f Sources: The Conference Board of Canada; Quebec Federation of Real Estate Boards. Sources: The Conference Board of Canada; Quebec Federation of Real Estate Boards. Ratio of Condominium Starts to Population Growth (starts per one person increase in population) Current year 2-year average f 1f Sources: The Conference Board of Canada; CMHC Housing Time Series Database. Employment Growth f 1f Sources: The Conference Board of Canada; Statistics Canada. While this will result in some upward movement in the sales-to-active-listings ratio, the increase will not be enough to cause big price gains. From 213 to 216, average apartment prices are expected to rise by just 3. per cent annually. Unlike the resale market, demand in Québec s new apartment condominium market increased through the global recession, as absorptions rose by more than 26 per cent over Builders responded by boosting starts 2.4 per cent in 28 and 16.8 per cent in 29, up to 1,3 units. In general, demand in the new apartment condominium market has been healthy for a number of years partly thanks to increasing population growth, as well as a rapidly increasing share of the population aged and older a prime buying group for apartment condominiums. And so, combined with spillover demand from the resale market, builders continued to increase starts at a rapid pace in 21 and 211 as well. By last year, starts of apartment condominiums had reached a record 2, units more than double their previous 1-year average.

9 Summer 212 Metropolitan Condo Outlook Resale Condominium Apartment Market f 213f 214f 21f 216f Unit sales 1,81 1,8 1,792 1,92 1,983 2,4 2,7 2, Active listings ,197 1,363 1,2 1,14 1,13 1, Months supply Average price 18,82 198,23 2,66 214,76 219,23 226,182 23, , Italics indicate percentage change. Sources: The Conference Board of Canada; Quebec Federation of Real Estate Boards; CMHC Housing Time Series Database. New Condominium Apartment Market f 213f 214f 21f 216f Starts 1,298 1,67 2,34 1,36 1,41 1,37 1,2 1, Under construction ,473 1,621 1,43 1,396 1,418 1, Completions 1,23 1,294 1,43 1,428 1,14 1,2 1,27 1, Complete and not absorbed Absorptions 1,129 1,296 1,48 1,48 1,239 1, 1,37 1, Months supply Italics indicate percentage change. Sources: The Conference Board of Canada; Quebec Federation of Real Estate Boards; CMHC Housing Time Series Database. In the first quarter of 212, units under construction climbed to unsustainable record levels, and so builders are expected to pull back from the market through the rest of 212 and into 213. Starts of apartment condominiums are forecast to drop by almost per cent over this year and next, back down to 1,4 units. Absorptions are also expected to weaken. Through 214 to 216, starts will remain under 1,1 units, nearer their longterm average.

10 6 Metropolitan Condo Outlook Summer 212 Montréal Share of Population by Age Cohort f Sources: The Conference Board of Canada; Statistics Canada. Unit sales in the Montréal s resale apartment condominium market are expected to rise this year. But slowing demand and high inventories will take their toll on the new apartment condominium market, with starts expected to decline by 31.2 per cent in 212 and 1.6 per cent next year. Montréal s resale apartment condominium market has had an impressive run of growth. By last year, unit sales of apartment condominiums topped 12,7 units, having more than doubled in the last decade alone, while average apartment prices rose above $2, for the first time. This growth was partly driven by foreign investment, an increasing number of young professionals wishing to live downtown, and a rising proportion of the population aged and older a prime condominium buying group. Indeed, by 211, the percentage of the population over the age of in Montréal had reached 27 per cent, up 8 percentage points over the last 1 years. Higher taxes and sluggish economic growth led to small declines in unit sales through the middle of last year. Demand slowed slightly again in the first quarter of 212, and more weakness is expected in the second quarter as consumers contend with a still modest economy, flat employment, and additional tax hikes. Still, on an annual basis, unit sales are forecast to rise by 4. per cent this year as the market picks up with increased Apartment Condo Construction (starts, units; share, per cent) 1, 12, 9, 6, 3, Apartment condo starts (left) Condo starts as a share of multiple starts (right) f 1f Sources: The Conference Board of Canada; CMHC Housing Time Series Database. economic activity in the second half of the year. Even stronger growth in active listings will result in the salesto-active-listings ratio falling to just under 12 per cent on average this year, its lowest level in six years. At this level, the resale market remains balanced, and so average price growth is expected to be 3.4 per cent for 212. A stable economy, good population growth, and continued increases in the population aged and older are forecast to help boost unit sales of apartment condominiums by 3.2 per cent per year, on average, in 213 and 214. But rising interest rates will then hold annual sales

11 Summer 212 Metropolitan Condo Outlook 7 Affordability and Condo Sales (share, per cent; sales, units) Share of household income spent on mortgage (left) Existing apartment condo sales (right) 16, 14, 12, 1, 8, 6, 4, f 14f 16f Sales to Active Listings and Price Change Sales-to-active-listings ratio (left) Average price growth (right) f 1f Sources: The Conference Board of Canada; Quebec Federation of Real Estate Boards. Sources: The Conference Board of Canada; Quebec Federation of Real Estate Boards. Ratio of Condominium Starts to Population Growth (starts per one person increase in population) Current year 2-year average f 1f Sources: The Conference Board of Canada; CMHC Housing Time Series Database. Employment Growth f 1f Sources: The Conference Board of Canada; Statistics Canada. growth to a 1.1 per cent average through With active listings expected to keep pace, average price growth should increase from 2.4 per cent next year to 3.8 per cent in 216. In the new apartment condominium market, cautious consumers pulled back from the market as the global recession unfolded in late 28, causing builders to reduce starts by 6.9 per cent in 29. By 21, inventories had fallen back to their lowest level in six years, and so builders returned to the market in droves: starts rose by 38.1 per cent in 21 and 19.8 per cent in 211, to reach a record 12,3 units last year. At the same time, however, faced with higher taxes and lower economic growth, buyers held back, leading to a much more moderate rise in absorptions. As a result, inventories also rose in 211. At 12,3 units, even with good population growth, starts are well above the long-term average starts-topopulation ratio and so are unsustainable given demographic requirements. To get inventories back under control, builders have already started to pull away from the new apartment condominium market, reducing starts in

12 8 Metropolitan Condo Outlook Summer 212 Resale Condominium Apartment Market f 213f 214f 21f 216f Unit sales 11,82 12,62 12,762 13,333 13,78 14,212 14,439 14, Active listings 7,222 6,832 8,36 9,196 9,2 9,813 1,22 9, Months supply Average price 22, ,734 26,824 26,94 272,1 279,91 289,991 3, Italics indicate percentage change. Sources: The Conference Board of Canada; Quebec Federation of Real Estate Boards; CMHC Housing Time Series Database. New Condominium Apartment Market f 213f 214f 21f 216f Starts 7,42 1,293 12,329 8,479 7,14 7,287 7,444 7, Under construction,8 7,83 1,617 11,149 1,8 1,127 1,1 1, Completions 7,284 7,197 9,442 1,47 7,43 7,2 7,4 7, Complete and not absorbed 1,83 1,233 1,369 1,776 1,623 1,429 1,463 1, Absorptions 7,213 7,78 8,911 9,82 7,778 7,38 7,48 7, Months supply Italics indicate percentage change. Sources: The Conference Board of Canada; Quebec Federation of Real Estate Boards; CMHC Housing Time Series Database. the final quarter of last year and through the first quarter of 212. Lower absorptions through the second half of the year will prompt further cuts to starts. In all, starts are forecast to fall nearly 47 per cent over this year and next, before realigning with underlying demographics, around 7, units annually, in 21 and 216.

13 Summer 212 Metropolitan Condo Outlook 9 Ottawa Share of Population by Age Cohort f Sources: The Conference Board of Canada; Statistics Canada. Public sector layoffs will discourage growth in Ottawa s resale and new apartment condominium markets this year. Unit sales of apartment condominiums are expected to remain flat in 212 after falling through the first quarter, while starts are forecast to increase by a modest 1.6 per cent as builders keep inventories contained. Apartment Condo Construction (starts, units; share, per cent) 1,6 1,2 Apartment condo starts (left) Condo starts as a share of multiple starts (right) After dropping in 28 in line with the global recession, unit sales in Ottawa s resale apartment condominium market rose 1.6 per cent in 29 and 18. per cent in 21. Price growth was also robust, with the median price increasing nearly 24 per cent over the two years. Sellers, spurred on by the higher prices, flocked to the market in 21, leading to a decline in the sales-toactive-listing ratio to below 3 per cent for the first time in four years. Last year, a combination of the higher prices, tighter mortgage rules, and renewed consumer cautiousness (this time due to spending cutbacks in the public service sector) reduced demand once more. Unit sales of apartment condominiums slipped.1 per cent. Meanwhile, sellers, lured by the recent price increases, increased active listings to near record levels. As a result, the sales-to-activelistings ratio fell further. In turn, median price growth finally began to moderate, easing to 1.4 per cent f 1f Sources: The Conference Board of Canada; CMHC Housing Time Series Database. Although sales picked up in the second half of 211, they then declined again through the first quarter of 212, perhaps owing to persistent nervousness by consumers as the federal government begins a series of layoffs in the region. This weakness is expected to continue throughout the year as well. Overall, unit sales of apartment condominiums will be relatively flat in 212, gaining just.3 per cent. But a drop in active listings is anticipated to raise the sales-to-active-listings ratio in 212, strengthening median price growth to a forecast 6. per cent this year. Thanks to an improved economy next year, unit sales of 14 7

14 1 Metropolitan Condo Outlook Summer 212 Affordability and Condo Sales (share, per cent; sales, units) Share of household income spent on mortgage (left) Existing apartment condo sales (right) 2 2, 18 1,8 16 1,6 14 1,4 12 1,2 1 1, f 14f 16f Sources: The Conference Board of Canada; Canadian Real Estate Association. Sales to Active Listings and Price Change Sales-to-active-listings ratio (left) Median price growth (right) f 14f 16f Sources: The Conference Board of Canada; Canadian Real Estate Association Ratio of Condominium Starts to Population Growth (starts per one person increase in population) Employment Growth Current year 2-year average f 1f Sources: The Conference Board of Canada; CMHC Housing Time Series Database f 1f Sources: The Conference Board of Canada; Statistics Canada. apartment condominiums are anticipated to increase an average of 2. per cent per year over 213 and 214. Rising interest rates will then slow sales growth to 1.8 per cent in 21 and 1 per cent in 216. However, with active listings continuing to fall from their near record levels in 211, the sales-to-active-listings ratio will move up toward its long-term equilibrium over the medium term. Accordingly, median price growth will get stronger, going from 1.8 per cent next year to per cent in 216. In the new market, starts topped 1, units in 21, as the recovery in the economy, low interest rates, and spillover demand from the resale market brought both builders and buyers back to the new market. But faced with tighter mortgage rules and looming public service sector layoffs, buyers lowered absorptions again in the first half of 211, driving inventories up to their highest level since 199. Builders responded with a 12 per cent decline in starts last year.

15 Summer 212 Metropolitan Condo Outlook 11 Resale Condominium Apartment Market f 213f 214f 21f 216f Unit sales 1,49 1,83 1,741 1,746 1,799 1,837 1,869 1, Active listings Months supply Median price 22,764 27, , , ,66 291,367 3,371 32, Italics indicate percentage change. Sources: The Conference Board of Canada; Canadian Real Estate Association; CMHC Housing Time Series Database. New Condominium Apartment Market f 213f 214f 21f 216f Starts 927 1,9 1,327 1,349 1,213 1,167 1,166 1, Under construction 1,87 1,83 1,899 1,734 1,79 1,79 1,794 1, Completions 94 1,443 1,311 1,391 1,212 1,169 1,163 1, Complete and not absorbed Absorptions 91 1,462 1,317 1,324 1,226 1,164 1,16 1, Months supply Italics indicate percentage change. Sources: The Conference Board of Canada; Canadian Real Estate Association; CMHC Housing Time Series Database. After a pickup in late 211, builders reduced starts of apartment condominiums in the first quarter of this year as inventories rose further, and more weakness is expected for the rest of the year. Still, the growth recorded in late 211 will help push starts up by 1.6 per cent this year, to a forecast 1,3 units still high by historical standards. Accordingly, as the weakness in the public sector continues to hamper demand in the coming years, builders are expected to lower starts gradually by an average of 1 per cent annually from 214 to 216.

16 12 Metropolitan Condo Outlook Summer 212 Toronto Share of Population by Age Cohort f Sources: The Conference Board of Canada; Statistics Canada. Unit sales in Toronto s resale market are forecast to fall by 1.2 per cent in 212, in line with modest economic growth and federal efforts to calm overheated markets. Starts in the new market will drop 2.2 per cent, even after hitting record levels in the first quarter. A new land transfer tax and the global recession ended an impressive string of growth in Toronto s resale apartment condominium market in 28. Unit sales fell 1.7 per cent that year, while median price growth slowed to 4 per cent. Demand accelerated again in 29 and 21 as the economy recovered, pushing sales up by nearly 19 per cent over the two years. The resulting increase in the sales-to-active-listings ratio, to 41.9 per cent its highest level in nine years then sparked growth in median apartment prices of 6 per cent in 29 and 1.2 per cent in 21. In spite of weaker economic growth, continued low interest rates kept demand in the resale apartment condominium market strong through much of last year as well. Sales increased.6 per cent in 211, to just under 23, units, while the median apartment price increased by 7.4 per cent, topping $3, for the first time. But with economic growth remaining modest and with the federal government introducing tighter mortgage rules, sales are forecast to fall 1.2 per cent this year and rise Apartment Condo Construction (starts, units; share, per cent) 2, 2, 1, 1,, Apartment condo starts (left) Condo starts as a share of multiple starts (right) f 1f Sources: The Conference Board of Canada; CMHC Housing Time Series Database. by only.7 per cent in 213. In turn, continued declines in the sales-to-active-listings ratio will hold price increases to 1.3 per cent this year and 2. per cent next year. Through the medium term, stronger economic growth and continued healthy population increases will initially help to boost unit sales once more, up by 2. per cent in 214. But higher interest rates are then expected to take their toll on demand, slowing sales growth to 2 per cent

17 Summer 212 Metropolitan Condo Outlook 13 Affordability and Condo Sales (share, per cent; sales, units) Share of household income spent on mortgage (left) Existing apartment condo sales (right) 2 28, 18 2, 16 22, 14 19, 12 16, 1 13, 8 1, f 14f 16f Sources: The Conference Board of Canada; Canadian Real Estate Association. Sales to Active Listings and Price Change Sales-to-active-listings ratio (left) Median price growth (right) f 1f Sources: The Conference Board of Canada; Canadian Real Estate Association Ratio of Condominium Starts to Population Growth (starts per one person increase in population) Employment Growth Current year 2-year average f 1f Sources: The Conference Board of Canada; CMHC Housing Time Series Database f 1f Sources: The Conference Board of Canada; Statistics Canada. in 21 and 1. per cent in 216. Meanwhile, price growth is anticipated to average 3.6 per cent per year from 214 onward. Builders doubled the number of apartment condominium starts in 28, partly in response to higher demand from investors looking for opportunities outside the struggling U.S. market. But the market came crashing back down at the end of that year, as the global recession took its toll on the local economy. Starts dropped by over per cent in 29, before low inventories then spurred builders to increase starts again in 21, bringing them back to 19, units for 211. While absorptions also rose through 21 11, inventories began to creep up once more as well. Nevertheless, given falling vacancy rates in the rental market and continued demand from foreign investors, builders forged ahead in the first quarter of this year, raising starts to a whopping 29,4 units at an annual rate. Builders were also likely taking advantage of a warmer-than-usual winter to accelerate their construction plans. With inventories still moving upward, and the ratio of condominium starts to population growth now well above its long-term average, the new apartment condominium market is expected slow through the rest of 212 and into 213. But a decent, though modest, economy and solid demographics (including Toronto s constantly

18 14 Metropolitan Condo Outlook Summer 212 Resale Condominium Apartment Market f 213f 214f 21f 216f Unit sales 21,227 21,71 22,96 22,636 22,786 23,32 23,827 24, Active listings 4,217,182,191,484,614,78,941 6, Months supply Median price 24,378 28,333 3,946 34,7 312,32 323,47 334, , Italics indicate percentage change. Sources: The Conference Board of Canada; Canadian Real Estate Association; CMHC Housing Time Series Database. New Condominium Apartment Market f 213f 214f 21f 216f Starts 1,94 11,86 19,13 18,724 1,689 1,96 16,26 16, Under construction 3,189 32,897 32,694 3,413 33,4 33,19 33,87 33, Completions 12,212 14,948 17,41 19,19 16,4 1,98 16,24 16, Complete and not absorbed Absorptions 12,26 14,444 17,37 18,982 16,191 1,961 16,221 16, Months supply Italics indicate percentage change. Sources: The Conference Board of Canada; Canadian Real Estate Association; CMHC Housing Time Series Database. growing immigrant community, which adds over 1, newcomers to Toronto on average each year), the two ingredients ultimately underpinning any healthy housing market, will help contain the damage. Indeed, while the vacancy rate will likely rise as units now under construction hit the market, population growth should limit the increase. Accordingly, starts are forecast to fall 2.2 per cent this year and 16.2 per cent in 213 before rising by a modest 1.9 per cent annually from 214 to 216.

19 Summer 212 Metropolitan Condo Outlook 1 Calgary Share of Population by Age Cohort f Sources: The Conference Board of Canada; Statistics Canada. Job gains, population growth, and low interest rates will support condominium demand in Calgary. A balanced resale market is expected this year, with moderate sales increases and resumed price growth. Falling unsold builder stocks will help lift starts in 212, before they drop in 213. The market for new condominium apartments is regaining its footing in Calgary. Although new unit absorptions fell sharply in 211, this mainly reflected sagging completions, themselves the product of weak starts following the 29 recession. More importantly, unsold builder inventories have generally eased. Although these ticked up in the first quarter of this year, such a wintertime increase is common in Calgary and followed significant declines in two of the previous three quarters. More broadly, inventories remain below year-earlier levels and are expected to keep easing through most of the next two years. This reflects both a recovering Calgary economy and pent-up demand. Employment rose in 211, following two annual declines, and the ratio of starts to population growth barely exceeded its 2-year average last year after trailing it sharply in both 29 and 21. Accordingly, we expect condo starts to hit a four-year high of nearly 2,4 units in 212 and to generally rise throughout our forecast. Still, the 216 level of 2,73 starts will be well below the 28 peak of more than,3 units. Apartment Condo Construction (starts, units; share, per cent) Apartment condo starts (left) Condo starts as a share of multiple starts (right) 6,, 4, 3, 2, 1, f 1f Sources: The Conference Board of Canada; CMHC Housing Time Series Database. The local resale market is stabilizing after a shortage of listings in early 211 prompted an abrupt tightening. Although supply rose throughout the year, average listings over the full year were the fewest since 26. Combined with a slight increase in sales during 211, this lifted the full-year sales-to-active-listings ratio to 31 per cent, the highest since 27. But the ongoing supply hikes, combined with generally steady sales, cut the ratio to 23 per cent by the fourth quarter and, further, to 21 per cent by the first quarter of 212. High sales-to-new-listings ratios during the boom period prior to the recession

20 16 Metropolitan Condo Outlook Summer 212 Affordability and Condo Sales (share, per cent; sales, units) Sales to Active Listings and Price Change Share of household income spent on mortgage (left) Existing apartment condo sales (right), 4, 3, 2, 1, Sales-to-active-listings ratio (left) Median price growth (right) f 14f 16f f 1f Sources: The Conference Board of Canada; Canadian Real Estate Association. Sources: The Conference Board of Canada; Canadian Real Estate Association. Ratio of Condominium Starts to Population Growth (starts per one person increase in population) Employment Growth Current year 2-year average f 1f Sources: The Conference Board of Canada; CMHC Housing Time Series Database f 1f Sources: The Conference Board of Canada; Statistics Canada. make it difficult to determine what constitutes a balanced market here. But it seems likely that a sales-to-listings ratio hovering just above 2 per cent is at the low end of this range. Similar readings in the past have been associated with price increases near 2 per cent still positive growth, but below the long-term average. We expect largely stable sales and gently easing listings to lift the ratio as 212 progresses, with its value approaching 2 per cent by the fourth quarter. Next year will see further moderate listings declines combine with small sales increases to lift the ratio to nearly 27 per cent by the end of 213, solidly positioning the Calgary resale market in balanced territory. A weakening market balance trimmed prices during the second half of 211. For the full year, the median price fell 2.3 per cent, the second drop in the past three years. A slightly tightening market balance will prompt price growth approaching 3 per cent in 213.

21 Summer 212 Metropolitan Condo Outlook 17 Resale Condominium Apartment Market f 213f 214f 21f 216f Unit sales 3,96 3,27 3,42 3, 3,621 3,67 3,72 3, Active listings 1,178 1, ,27 1,11 1,132 1,1 1, Months supply Median price 241,42 242,92 237,34 239,44 246,414 24, , , Italics indicate percentage change. Sources: The Conference Board of Canada; Canadian Real Estate Association; CMHC Housing Time Series Database. New Condominium Apartment Market f 213f 214f 21f 216f Starts 383 1,63 2, 2,373 2,97 2,369 2,64 2, Under construction,3 3,387 3,174 3,982 3,77 3,716 3,642 3, Completions 2,164 2, ,32 2,13 2,429 2,643 2, Complete and not absorbed Absorptions 1,89 2, ,14 2,381 2,42 2,643 2, Months supply Italics indicate percentage change. Sources: The Conference Board of Canada; Canadian Real Estate Association; CMHC Housing Time Series Database. Relatively high local incomes, combined with middleof-the-pack condominium prices, give Calgary the best affordability among the eight cities covered in this report. Principle and interest charges are expected to consume only 8.9 per cent of local incomes during 212, down from 9.2 per cent in 211 and a peak of 12.7 per cent in 27. Affordability is expected to remain good in 213 as interest rates stay moderate and the median price rises at roughly the same pace as the expected increase in household income.

22 18 Metropolitan Condo Outlook Summer 212 Edmonton Share of Population by Age Cohort f Sources: The Conference Board of Canada; Statistics Canada. Low interest rates and employment gains will ultimately fuel a stronger apartment condominium market in Edmonton, but another relatively weak year is expected in 212, with sales, starts, and resale prices all falling. Next year looks significantly better, as sales, the median existing apartment price, and starts are all expected to rise. Apartment Condo Construction (starts, units; share, per cent) 4, 3, Apartment condo starts (left) Condo starts as a share of multiple starts (right) 6 The new condominium market in Edmonton is settling following large swings induced by the recession. The big drop in condominium starts during 29 is being felt now at the other end of the product pipeline. Completions in both 21 and 211 were roughly a third of their 29 peak. Absorptions are also soft; they fell for a second consecutive year in 211 and remain well below boom-era levels. Still, absorptions picked up in the second half of the year, trimming builder inventories of unsold units for 211; these stocks fell again in the first quarter of 212 as completions fell more than absorptions. We expect absorptions to strengthen throughout 212, but still end the year down slightly the second straight annual drop. But inventories will also ease, because completions are forecast to fall even faster. These falling inventories should ultimately encourage builders. There is also evidence of pent-up demand, since the ratio of condominium starts to population growth has lagged its 2-year average since 28. Despite this, apartment condominium starts are forecast to dip to just over 2, 1, f 1f Sources: The Conference Board of Canada; CMHC Housing Time Series Database. 1,1 units in 212, the second straight drop, pulled down by a weak first-quarter showing. Next year looks significantly better, with starts forecast to hit a five-year high of 1,6 units still less than half the 27 peak. The market for existing apartment condominiums is having difficulty gaining traction and remains in a buyers position. Despite dips in both the first and the fourth quarter of last year, sales rose 4. per cent for the year 211 as a whole. This modest gain followed a 16 per cent drop during 21 and left volumes down more 4 3 2

23 Summer 212 Metropolitan Condo Outlook 19 Affordability and Condo Sales (share, per cent; sales, units) Sales to Active Listings and Price Change Share of household income spent on mortgage (left) Existing apartment condo sales (right), 4, 3, 2, 1, f 14f 16f Sales-to-active-listings ratio (left) Median price growth (right) f 1f Sources: The Conference Board of Canada; Canadian Real Estate Association. Sources: The Conference Board of Canada; Canadian Real Estate Association. Ratio of Condominium Starts to Population Growth (starts per one person increase in population) Current year 2-year average f 1f Sources: The Conference Board of Canada; CMHC Housing Time Series Database. Employment Growth f 1f Sources: The Conference Board of Canada; Statistics Canada. than 4 per cent from their 27 peak. Sales are expected to fall a further 9.6 per cent in 212 to near 2,34 units before rebounding 3.7 per cent in 213. This uneven sales performance has made potential condominium vendors nervous. Listings fell 13.4 per cent in 211, before rising in the first quarter of 212. We expect the weak market to trim listings another 9 per cent overall this year and more quickly in 213. Still, vendors can take some encouragement from the slight but steady rise in the sales-to-active-listings ratio, which averaged 17. per cent last year, up from 14. per cent in 21. Drops in both sales and listings are expected to leave the ratio little changed this year, but the falling listings and rising sales forecast for 213 will lift it to a roughly balanced-market reading near 2 per cent. Ongoing market weakness has been reflected in soggy apartment condominium values, with the median price falling by a total of 8. per cent over the past four years, following spectacular increases prior to the global recession. Another 1.9 per cent price drop is on tap for this year, but a firming market will finally produce a 3.2 per cent rise in 213.

24 2 Metropolitan Condo Outlook Summer 212 Resale Condominium Apartment Market f 213f 214f 21f 216f Unit sales 2,933 2,472 2,83 2,336 2,423 2,482 2,24 2, Active listings 1,327 1,421 1,231 1, Months supply Median price 218,7 217, ,678 28,649 21,29 223, ,23 238, Italics indicate percentage change. Sources: The Conference Board of Canada; Canadian Real Estate Association; CMHC Housing Time Series Database. New Condominium Apartment Market f 213f 214f 21f 216f Starts 43 1,463 1,369 1,133 1,98 1,822 1,968 2, Under construction 3,986 2,99 2,93 2,988 3,92 3,73 3,9 3, Completions 3,987 1,321 1,336 1,112 1,73 1,831 1,993 2, Complete and not absorbed Absorptions 3,383 1,449 1,366 1,288 1,79 1,84 1,974 2, Months supply Italics indicate percentage change. Sources: The Conference Board of Canada; Canadian Real Estate Association; CMHC Housing Time Series Database. Apartment condominium affordability is good in Edmonton. Principle and interest charges on the medianpriced unit consumed only 9.8 per cent of the average household income in 211. This bite is forecast to ease even further in 212 as condominium prices dip and interest rates remain low.

25 Summer 212 Metropolitan Condo Outlook 21 Vancouver Share of Population by Age Cohort f Sources: The Conference Board of Canada; Statistics Canada. Vancouver s condominium market is correcting as the tide of offshore investment recedes, exposing its poor affordability. Still, decent local employment growth and continued low interest rates will provide a cushion. And apartment condominiums remain a relatively affordable housing solution in a pricey city. There is downside risk, however, if Chinese demand plunges. Both new and resale markets for apartment condominiums are slow in Vancouver. New construction must compete with persistently high unsold unit inventories, although these were down in 211 after a big run-up in 21. Inventory declines during the first three quarters of 211 were mostly due to a relatively large drop in the supply of completions, because absorption demand also fell. The fourth quarter, though, saw a big jump in absorptions outweigh a smaller rise in completions. By the fourth quarter of 211, inventories stood 26 per cent below a year earlier, leaving average stocks for the entire year at near 1, units, down 18 per cent from the 21 level. Such levels are vastly above those seen prior to the global recession, but still only about half those that plagued the Vancouver market during the mid-199s. The market managed to erase the mid-199s inventories and it will eventually trim the current backlog. But this year will see a slight setback as completions rise faster than absorptions and lift builder stocks to nearly 1,6 units. Apartment Condo Construction (starts, units; share, per cent) 1, 12, 9, 6, 3, Apartment condo starts (left) Condo starts as a share of multiple starts (right) f 1f Sources: The Conference Board of Canada; CMHC Housing Time Series Database. Real gains are expected to begin in 213 as further absorption advances are forecast to cut inventories 12 per cent. This murky environment is keeping developers wary. Condominium starts have improved, with a 23 per cent gain last year lifting volumes above 7,1 units from a 29 trough below 2,4 units. But this was barely half the 27 peak, and starts are forecast to drop 8 per cent in 212. An expected 6 per cent rise in starts next year will not fully erase the 212 dip