Insights Into the Apartment Condominium Market in Eight Large Canadian Metropolitan Areas.

Transcription

1 Insights Into the Apartment Condominium Market in Eight Large Canadian Metropolitan Areas. METROPOLITAN CONDO OUTLOOK SUMMER 216

2 Metropolitan 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. 216 The Conference Board of Canada* Published in Canada All rights reserved Agreement No *Incorporated as AERIC Inc. The Conference Board of Canada and the torch logo are registered trademarks of The Conference Board, Inc. About Genworth Canada Genworth MI Canada Inc. (TSX: MIC) through its subsidiary, Genworth Financial Mortgage Insurance Company Canada (Genworth Canada), is the largest private residential mortgage insurer in Canada. The Company provides mortgage default insurance to Canadian residential mortgage lenders, making homeownership more accessible to first-time homebuyers. Genworth Canada differentiates itself through customer service excellence, innovative processing technology, and a robust risk management framework. For almost two decades, Genworth Canada has supported the housing market by providing thought leadership and a focus on the safety and soundness of the mortgage finance system. As at June 3, 215, Genworth Canada had $6.2 billion total assets and $3.4 billion total shareholders equity. Find out more at Preface This report from The Conference Board of Canada and Genworth 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 once a year, in summer. 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.

3 Contents Overview...1 Metropolitan Insights...3 Québec... 3 Montréal Ottawa... 9 Toronto Calgary Edmonton Vancouver Victoria Definitions and Concepts...27 Standard Geographical Classification (SGC) Metropolitan areas with their component census subdivisions... 28

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5 Overview After starting the year strongly, Canada s economy has slowed, with real GDP falling in three of four months, including a.6 per cent contraction in May as the Alberta wildfires led the economy to its worst one-month performance in seven years. Job gains have also been weak. This soft economic outlook will likely prompt the Bank of Canada to keep its key interest rate steady through 216. The Bank has also cited potential financial vulnerabilities, particularly in Vancouver and Toronto, given rapid price increases in certain pockets of their housing markets. Our forecasts reflect this unevenness. We expect real GDP to rise modestly 1.4 per cent in 216 and 2.1 per cent in 217 although this improves on the 1.1 per cent 215 rise. Employment gains are set to remain below 1 per cent for the third straight year in 216 and hit only 1.2 per cent next year. The unemployment rate will move up to 7.3 per cent this year, but fall back to 6.9 per cent next year. Population growth will average just over 1 per cent annually from 216 to 22, in line with the 2-year average, with larger gains among the condominium-loving 55-plus age group. Strong residential demand in Toronto and Vancouver is spilling over into the apartment condominium market, as constrained supplies of ground-oriented units, particularly single-family homes, push their prices out of reach for many buyers. This is improving the health of apartment condominium markets. For Toronto, worries over a crashing new condominium market have Apartment Condo Indicators Starts Resale sales Resale price ($)* f 217f f 217f f 217f Québec ,75 1,513 1,488 1, , ,13 217, Montréal 7,542 6,391 7,934 11,29 11,91 12,15 276, , , Ottawa ,55 1,415 1,373 1,42 258, , , Toronto 22,695 18,291 15,181 25,9 27,333 25,75 329, , , Calgary 4,51 2,414 2,58 3,621 3,32 3, , , , Edmonton 4,332 1,726 1,377 2,7 2,548 2, , , , Vancouver 9,91 12,365 1,153 17,792 21,348 19,21 399, , , Victoria ,68 3,7 3,22 277, ,295 31, *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: Canada Mortgage and Housing Corporation; Canadian Real Estate Association; The Conference Board of Canada.

6 2 Metropolitan Condo Outlook Summer 216 largely dissipated, as new unit absorptions hit a record in 215. In this context, relatively high builder inventories are not especially worrisome, and resale price growth has picked up. In Vancouver, strong absorptions have depleted new apartment stocks, while brisk sales of existing units have slashed active listings, tightening the market and pushing price growth to double-digit territory. Victoria s apartment market is benefiting from a firming local economy and spillover demand from Vancouver. Economies and residential demand in Calgary and Edmonton continue to recover slowly from the 214 oil price collapse. Apartment markets remain tepid in Ottawa, Montréal, and Québec. The rapid price increases in Toronto and especially Vancouver are prompting corrective policy moves. In July, the B.C. government said it would allow Vancouver to levy a tax on vacant units. It also introduced a 15 per cent tax on housing purchased by buyers who are not Canadian citizens or permanent residents, following the release of data showing that foreign nationals accounted for about 1 per cent of the total value of all sales in Metro Vancouver in the past year. Federal moves could follow: in June, Minister of Finance Bill Morneau announced the federal government is also studying the role of foreign ownership in the housing market. Canada Mortgage and Housing Corporation recently reported a statistically significant increase in foreign condominium ownership in Toronto and Vancouver from 214 to 215. Toronto is forecast to see the fastest absolute population growth of over 8, this year and annual growth ramping up to 9, by 22. Calgary and Edmonton will see the largest percentage growth at 1.7 per cent each this year, with modest acceleration thereafter. Still, both cities growth rates have been trimmed by the oil price shock. Meanwhile, the share of those aged 55 or more is forecast to increase in all eight of this report s cities. Regional economic conditions vary widely. Oil s price collapse will continue to prompt real GDP declines in both Calgary and Edmonton this year, but 217 will see the start of a modest recovery. By contrast, Vancouver is set to enjoy 3.2 per cent real GDP growth in 216. The regional employment picture will be similar, with strong gains in Vancouver and declines in Calgary and Edmonton. Among the four eastern Canadian cities in this report, Toronto is expected to lead the way with a 2.6 per cent output expansion. This economic backdrop will underpin disparate housing market conditions. Existing apartment sales will surge this year in the B.C. cities and rise more moderately in Toronto and Montréal. Volumes will decline elsewhere, led by a 16 per cent drop in Calgary. Big jumps in the salesto-active-listing ratio have pushed apartment markets in Vancouver and Victoria into sellers territory, while Toronto s market is close to this reading. All other cities face buyers conditions. Unsurprisingly, this is producing a mixed price outlook: Vancouver will lead all markets with a 13 per cent jump; Victoria will post an 8 per cent gain; and prices are set to decline in Calgary, Edmonton, Québec, and Ottawa. New condominium conditions are similarly divergent. Absorptions are expected to fall in four cities this year Calgary, Ottawa, Victoria, and particularly Toronto, which is expected to see more normal volumes this year following a big 215 jump. Despite a small uptick, absorptions remain weak in Québec. Montréal absorptions also remain unexceptional. Builder inventories are generally well contained and set to rise only in Ottawa and the oil-ravaged Alberta cities this year. For 217, Québec, Edmonton, Vancouver, and Victoria are expected to see these stocks increase. Against this backdrop, starts are forecast to fall this year in both Quebec cities, in both Alberta cities, and in Toronto. For 217, an even mix of advances and declines is expected. Québec will see starts nearly double next year, while Toronto, Vancouver, and Edmonton will suffer significant declines. A relatively stable five-year mortgage rate will not affect affordability this year or next. Carrying costs are set to decline in four cities this year, led by a 6 per cent drop in Québec. By contrast, soaring prices in Vancouver will boost already sky-high mortgage charges by nearly 13 per cent, lifting the percentage of household income they consume by 2 percentage points. But incomes will rise faster than carrying costs in Québec, Montréal, Ottawa, and Edmonton. For 217, a small mortgage rate increase will contribute to higher carrying costs in all eight cities, both absolutely and relative to incomes.

7 Summer 216 Metropolitan Condo Outlook 3 Québec Share of Population by Age Cohort f Sources: The Conference Board of Canada; Statistics Canada. Unit sales of existing apartment condominiums in Québec are expected to dip 1.6 per cent in 216 following increases in each of the past two years. With an abundance of units for sale, prices are expected to drop in 216 for only the second time in 17 years. At the same time, the buyers market on the resale side will combine with high inventories to convince builders to cut starts this year for the fourth year in a row. A buyers market, as evidenced by a low sales-toactive-listings ratio, has put a damper on average resale apartment condominium prices in Québec over the past two years. Prices grew by just 1 per cent in 214 and then fell by the same amount in 215. Even though unit sales of apartment condominiums rose by 2.3 per cent on an average annual basis between 214 and 215, active listings rose at an even faster pace. This lowered the sales-to-active-listings ratio to 5.2 per cent, its lowest level since Although apartment sales rose on a quarter-over-quarter basis in the first half of 216, they were actually down on a year-over-year comparison, signalling that the resale market has slowed. Indeed, the Conference Board expects unit sales to decline by 1.6 per cent for the year as a whole. However, the downturn is expected to be short-lived, as sales are projected to bounce back and climb by 2.9 per cent in 217, in line with healthy Apartment Condo Construction (starts, units; share, per cent) Apartment condo starts (left) Condo starts as a share of multiple starts (right) 3, 2,5 2, 1,5 1, f 17f 19f Sources: The Conference Board of Canada; CMHC Housing Time Series Database economic growth and somewhat faster job creation. A stable economy will keep demand moving upward over the medium term as well, with apartment sales forecast to grow by an average of 2.3 per cent per year. At the same time, sellers are expected to take a break. After reaching a record 2,5 units last year, active listings are forecast to drop 2.5 per cent in 216. Helped by rising sales, they will continue to fall in the coming years as well, down by a forecast 8.4 per cent on an average annual basis from 217 to 22. Accordingly,

8 4 Metropolitan Condo Outlook Summer 216 Affordability and Apartment 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) 2, 1,8 1,6 1, Sales-to-active-listings ratio (left) Average price growth (right) , f 18f 2f 1, f 19f 1 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 19f Sources: The Conference Board of Canada; CMHC Housing Time Series Database. Employment Growth f 19f Sources: The Conference Board of Canada; Statistics Canada. after remaining fairly stable in 216, the sales-to-activelistings ratio will climb steadily through the medium term, reaching 8 per cent by 22. Due to a significant decline in the first quarter of this year, average resale prices are expected to fall by 5.8 per cent in 216. But price growth is projected to resume next year, in line with a rising sales-to-activelistings ratio. However, the gains will be moderate. Specifically, growth in the average apartment price is forecast to reach 2.5 per cent in 217 and 2.1 per cent, on an average annual basis, from 218 to 22. Similar to the rise in active listings on the resale side, the new apartment condominium market has experienced an elevated level of inventories. Not surprisingly, the glut of newly completed and unoccupied apartment condominiums convinced home builders to walk away from the market starting in 213. Consequently, apartment condominium starts tumbled by 25.7 per cent on an average annual basis from 213 to 215, ending last year below 1, units for the first time since 22. Unfortunately, starts weakened even further in the first half of 216, and so are expected to reach just 55 units for this year as a whole.

9 Summer 216 Metropolitan Condo Outlook 5 Resale Condominium Apartment Market f 217f 218f 219f 22f Unit sales 1,446 1,483 1,513 1,488 1,531 1,565 1,6 1, Active listings 2,145 2,264 2,471 2,41 2,212 2,45 1,848 1, Months supply Average price ($) 225, ,41 225, ,13 217, , , , Italics indicate percentage change. Sources: The Conference Board of Canada; Canadian Real Estate Association; CMHC Housing Time Series Database. New Condominium Apartment Market f 217f 218f 219f 22f Starts 1,462 1, ,75 1,149 1,185 1, Under construction 1, Completions 1,756 1, ,298 1,182 1,219 1, Complete and not absorbed Absorptions 2,121 1, ,3 1,285 1,251 1, Months supply Italics indicate percentage change. Sources: The Conference Board of Canada; Canadian Real Estate Association; CMHC Housing Time Series Database. At the same time, absorptions have also been falling. The good news is that, despite this drop, absorptions have been running higher than completions, leading to a steady decline in inventories. Inventories are expected to fall over the rest of the forecast, reaching about 2 units in 22. Tightening resale and new condominium markets will boost homebuilder confidence. Consequently, we expect starts to move above 1, units in 217 and grow steadily over the rest of the forecast. Le Phare de Québec, a $6-million mixed-use, four-tower skyscraper, is one project in particular that will help boost apartment condominium starts. The projected decline in average prices this year will help to lower the share of household income needed to cover principal and interest payments on an apartment condominium mortgage. Our estimates show that this share is expected to make up 12.8 per cent of household income in 216, down from 13.8 per cent last year. This puts Québec in the middle of the pack in terms of affordability among the eight cities in this report. This middle ranking comes despite the fact that Québec has the lowest average monthly mortgage payment in this report, projected at $1,72 in 216. This implies that Québec s affordability is being weighed down by relatively low household incomes.

10 6 Metropolitan Condo Outlook Summer 216 Montréal Share of Population by Age Cohort f Sources: The Conference Board of Canada; Statistics Canada. With Montréal s real GDP set to rise at its fastest rate in five years, we expect this year s demand for resale apartment condominiums in the city will be strong. Sales should rise by 5.5 per cent. Absorptions of new apartment condominium units are also set to jump this year. However, with a high number of unsold units sitting on the market already, builders will continue to walk away from the new market, reducing starts of apartment condominiums for the fourth time in five years. Montréal s resale apartment condominium market went through a rough spell between 212 and 214, with sales slipping an average of 5 per cent per year. Some of the factors behind the cooling market included tightening mortgage rules, deteriorating affordability, and moderate economic growth. Fortunately, things started to turn around last year, as sales of condominiums rose by 3.3 per cent. The positive momentum continued through the first half of 216, as sales were above previous-year levels in both quarters. With the local economy on track to improve this year and next posting growth of 1.6 per cent in 216 and 2 per cent in 217 the next 18 months should bring similarly good news for the resale apartment condominium market. Indeed, sales are forecast to grow by 5.5 per cent in 216 and by 1.6 per cent next year. A stable economy should keep unit sales moving upward, allowing them to reach their 211 peak of 12,75 units once again in 22. Apartment Condo Construction (starts, units; share, per cent) 15, 12, 9, 6, 3, Apartment condo starts (left) Condo starts as a share of multiple starts (right) f 17f 19f Sources: The Conference Board of Canada; CMHC Housing Time Series Database. Active listings had increased 3.9 per cent last year, the fifth straight year that they outpaced sales, leading to further slack in the resale apartment market. In fact, the sales-to-active-listings ratio dipped to 6.8 per cent in 215, its lowest reading since However, this pattern is expected to reverse starting this year. While sales rise, active listings are forecast to drop by 1.1 per cent, pushing the sales-to-active-listings ratio up slightly to 7.4 per cent. Sales are then expected to increase at a slightly faster pace than active listings in three of the next four years. The sales-to-active-listings ratio will

11 Summer 216 Metropolitan Condo Outlook 7 Affordability and Apartment Condo Sales (share, per cent; sales, units) Share of household income spent on mortgage (left) Existing apartment condo sales (right) 15, f 18f 2f Sources: The Conference Board of Canada; Canadian Real Estate Association. 12, 9, 6, Sales to Active Listings and Price Change Sales-to-active-listings ratio (left) Average price growth (right) f 17f 19f 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 17f 19f Sources: The Conference Board of Canada; CMHC Housing Time Series Database f 17f 19f Sources: The Conference Board of Canada; Statistics Canada. slowly inch up but remain in buyers territory, climbing to 7.7 per cent by 22. This will keep the lid on house price growth. After increasing by a forecast 1.8 per cent in 216, average resale condominium prices will remain modest in the coming years, growing by an average of 2 per cent per year from 217 to 22. Meanwhile, in the new apartment condominium market, completions were higher than absorptions in every year from 211 to 215, leading to a significant increase in unabsorbed inventories. In fact, they reached a record 2,5 units last year, more than double their level in 21 a 16.3 per cent annual average increase. Not surprisingly, this resulted in builders stepping away from the market. Starts of apartment condominiums declined in four of the past five years, falling to a 1-year low of just over 7,5 units last year. A weak beginning to the year suggests starts have further to fall. And while some major projects are still expected to go forward this year including phase 2 of the Tour des Canadiens; a second condominium tower near Bell Centre; and L Avenue, a 5-storey hotel and residential building in the same area they will not be enough to lift starts overall for 216. In fact, apartment condominiums starts are forecast to decline another 15.3 per cent this year, falling to a 14-year low.

12 8 Metropolitan Condo Outlook Summer 216 Resale Condominium Apartment Market f 217f 218f 219f 22f Unit sales 11,286 1,93 11,29 11,91 12,15 12,37 12,492 12, Active listings 11,971 13,15 13,521 13,371 13,552 13,926 13,953 13, Months supply Average price ($) 264,483 27,33 276, , , , ,933 33, Italics indicate percentage change. Sources: The Conference Board of Canada; Canadian Real Estate Association; CMHC Housing Time Series Database. New Condominium Apartment Market f 217f 218f 219f 22f Starts 8,728 1,36 7,542 6,391 7,934 8,126 8,217 8, Under construction 12,673 11,663 1,557 8,981 8,843 8,862 8,863 8, Completions 9,585 11,732 7,51 8,93 7,887 8,123 8,213 8, Complete and not absorbed 1,886 2,459 2,584 2,161 1,822 1,792 1,81 1, Absorptions 9,329 1,972 7,349 8,486 8,14 8,12 8,215 8, Months supply Italics indicate percentage change. Sources: The Conference Board of Canada; Canadian Real Estate Association; CMHC Housing Time Series Database. But absorptions are expected to be greater than completions this year and again in 217, thanks to a fairly healthy economy. This will work down inventories and thus encourage builders to come back to the market. Indeed, apartment condominium starts are forecast to rise 24.1 per cent next year, and climb by an average of 1.4 per cent annually over the medium term. The modest price increases we are projecting will offset a similar gain in income, holding flat the share of household income needed to cover principal and interest payments on an apartment condominium mortgage. According to our estimates, mortgage payments will consume 16.7 per cent of household income this year, the same share as in 215. This makes Montréal the second least affordable condominium market among this report s eight cities, ranking behind only Vancouver. However, Montréal s poor affordability is a function more of low household income than of high prices. Based on 216 average prices, monthly mortgage payments would come in at just under $1,425 in Montréal. The equivalent figure in Vancouver is close to $2,3.

13 Summer 216 Metropolitan Condo Outlook 9 Ottawa Share of Population by Age Cohort f Sources: The Conference Board of Canada; Statistics Canada. Despite signs of economic improvement, Ottawa s apartment condominium market remains soft. On the resale side, unit sales, active listings, and the median price are all on track to fall this year. Things are not much better in the new condo market. Absorptions are projected to fall, and inventories are continuing to rise from record-high levels. Even though starts are forecast to rise modestly in 216, this follows a 1-year low last year. Fiscal restraint in the federal government Ottawa s largest employer and the tepid economic and job growth that ensued, reduced demand for apartment condominiums in the national capital. Unit sales declined for three straight years from 212 to 214, reaching an eight-year low in 214. Although sales ended their downward streak in 215, rising by 5 per cent, they were still below the previous 1-year average level. The falling sales were accompanied by six consecutive years of active listings growth. Accordingly, the sales-to-active-listings ratio has been falling since 21, reaching 9.8 per cent last year. The market move from a sellers market to a buyers one has led to price declines in two of the past three years, including a 1.1 per cent decline in 215. Although the local economy is expected to post its strongest growth in five years in 216, in line with more expansive fiscal policy, demand for existing apartments Apartment Condo Construction (starts, units; share, per cent) Apartment condo starts (left) Condo starts as a share of multiple starts (right) 3, 2,5 2, 1,5 1, f 17f 19f Sources: The Conference Board of Canada; CMHC Housing Time Series Database. remains fairly weak. Unit sales of apartment condominiums were down more than 5 per cent year-over-year in the first quarter of 216. Although they posted an increase in the second quarter, the Conference Board expects sales to fall by 3 per cent for the year overall. However, a recovery is set to begin in 217, as further improvements in economic growth boost demand for apartment condominiums. Unit sales are forecast to grow by 3.4 per cent next year and by an average of 2.4 per cent per year from 218 to

14 1 Metropolitan Condo Outlook Summer 216 Affordability and Apartment Condo Sales (share, per cent; sales, units) Share of household income spent on mortgage (left) Existing apartment condo sales (right) f 18f 2f Sources: The Conference Board of Canada; Canadian Real Estate Association. 1,8 1,6 1,4 1,2 1, Sales to Active Listings and Price Change Sales-to-active-listings ratio (left) Median price growth (right) f 17f 19f 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 17f 19f Sources: The Conference Board of Canada; CMHC Housing Time Series Database f 17f 19f Sources: The Conference Board of Canada; Statistics Canada. After reaching a record 1,2 units last year, active listings are forecast to decline by 4.1 per cent this year and by an annual average of 7 per cent from 217 to 22. This will help lift the sales-to-active-listings ratio steadily in the coming years. By 22, the ratio is forecast to be 14.7 per cent. In turn, price growth will strengthen. Following another decline of 1.3 per cent in 216, the median resale apartment price is expected to increase by 2.1 per cent, on an average annual basis, from 217 to 22. The weakness in prices has made apartments more affordable in Ottawa in recent years. The average monthly mortgage payment for an apartment set a homeowner back about $1,45 in 212. We expect this payment to fall below $1,3 this year. Consequently, the share of household income needed to cover principal and interest payments is expected to decline from 15 per cent in 212 to 12.4 per cent this year. This makes Ottawa the third most affordable city among the eight cities covered in this report. The number of absorbed units in the new apartment condominium market has held up pretty well, although this strength is likely based on sales made prior to or at the start of the economic slowdown. Indeed, a record number of units were started in 212 and 213, right when the fiscal restraint program was introduced. Absorptions

15 Summer 216 Metropolitan Condo Outlook 11 Resale Condominium Apartment Market f 217f 218f 219f 22f Unit sales 1,483 1,347 1,415 1,373 1,42 1,455 1,492 1, Active listings 1,67 1,131 1,2 1, Months supply Median price ($) 259,83 261, , , , , , , Italics indicate percentage change. Sources: The Conference Board of Canada; Canadian Real Estate Association; CMHC Housing Time Series Database. New Condominium Apartment Market f 217f 218f 219f 22f Starts 2,268 1, ,55 1,43 1,87 1, Under construction 3,354 3,131 1,94 1,237 1,179 1,143 1,129 1, Completions 1,334 2,412 1,941 1,124 1,79 1,87 1,88 1, Complete and not absorbed Absorptions 1,335 2,299 1,759 1,92 1,31 1,186 1,148 1, Months supply Italics indicate percentage change. Sources: The Conference Board of Canada; Canadian Real Estate Association; CMHC Housing Time Series Database. were strong in 214 and 215, averaging 2, units per year, as many projects were completed. But absorptions are expected to fall by almost 4 per cent to about 1, units this year, back to a level more in line with the recent historical average. Even though absorptions were quite strong in both 214 and 215, completions were even stronger. Consequently, inventories of unsold units spiked, reaching a record 55 units last year. Builders responded by reducing starts significantly over 213 to 215. In fact, after reaching a record 2,277 units in 212, starts slipped to a 1-year low of 792 units last year. Despite elevated inventory levels, signs of a stronger economy are encouraging builders to proceed with new projects this year. As a result, starts are expected to increase to a modest 827 units for 216. At the same time, completions will outpace absorptions once again. This will cause a further increase in inventory levels in 216 up to 67 units. But this trend is expected to reverse starting next year: absorptions are expected to be greater than completions, allowing inventories to move back down in 217 and over the following few years.

16 12 Metropolitan Condo Outlook Summer 216 Toronto Share of Population by Age Cohort f Sources: The Conference Board of Canada; Statistics Canada. Activity in Toronto s apartment condominium resale market remains healthy. A strong first half will lead to a 9.3 per cent increase in unit sales this year. Sales are expected to take a bit of a breather in 217, but then rise through the medium term, in line with a solid economy. In contrast, absorptions of new apartment condominiums will drop dramatically this year, following a record 215. At the same time, a record level of inventories last year will convince builders to cut starts by a projected 19.4 per cent in 216 and by a further 17 per cent in 217. Toronto s resale apartment condominium market has experienced strong growth in recent years. Demand has been driven by a number of factors, including solid population and employment gains, relative affordability compared to ground-oriented units, foreign investment, low interest rates, and an increasing number of people wanting to live downtown or near public transit stations. Indeed, sales have been so strong that they surpassed 25, units last year for the first time on record. Even with the strong sales growth, not only did active listings keep climbing, but they did so at a faster pace. This pushed down Toronto s sales-to-active-listings ratio from nearly 38 per cent in 29 to 32.6 per cent in 215. The slackening market has kept a lid on price growth, averaging a moderate 2.6 per cent per year from 212 to 215. Apartment Condo Construction (starts, units; share, per cent) 3, 25, 2, 15, 1, Apartment condo starts (left) Condo starts as a share of multiple starts (right) 5, f 17f 19f Sources: The Conference Board of Canada; CMHC Housing Time Series Database. The resale apartment condominium market remained strong through the first half of 216. Unit sales increased almost 7 per cent in the first quarter at annual rates and were nearly as strong in the second. Although we expect that this vigorous pace will not be maintained over the second half of the year, unit sales are still forecast to rise by 9.3 per cent for the year overall, bringing them to a record 27,3 units. Sales are expected to cool to a still historically high 25,7 units next year, before climbing at a modest pace of 1.2 per cent per year from 218 to

17 Summer 216 Metropolitan Condo Outlook 13 Affordability and Apartment Condo Sales (share, per cent; sales, units) Share of household income spent on mortgage (left) Existing apartment condo sales (right) f 18f 2f Sources: The Conference Board of Canada; Canadian Real Estate Association. 3, 25, 2, 15, 1, Sales to Active Listings and Price Change Sales-to-active-listings ratio (left) Median price growth (right) f 17f 19f 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 17f 19f Sources: The Conference Board of Canada; CMHC Housing Time Series Database f 17f 19f Sources: The Conference Board of Canada; Statistics Canada. Meanwhile, active listings dropped considerably in the first half of 216 and are expected to fall by more than 2 per cent for the year in total. Accordingly, the sales-to-active-listings ratio will jump to 47.1 per cent this year, its highest rate ever. This sellers market has boosted price growth median resale apartment condominium prices are on track to increase by 6.5 per cent in 216, their strongest gain in five years. But we expect active listings to jump by 9.9 per cent next year and outpace sales over the rest of the forecast. Thus, the sales-to-active-listings ratio will slowly fall through the medium term, limiting growth in median resale apartment condominium prices to an average of 1.6 per cent annually over the next four years. Strong price growth is eroding affordability in the apartment market. Indeed, the share of household income needed to cover principal and interest payments on an apartment condominium mortgage will rise from 15.5 per cent last year to a record 16.2 per cent this year. Still, of the eight cities covered in this report, Toronto ranks fourth in terms of affordability, behind Vancouver, Victoria, and Montréal. In comparison, Vancouver s share of household income needed is expected to

18 14 Metropolitan Condo Outlook Summer 216 Resale Condominium Apartment Market f 217f 218f 219f 22f Unit sales 2,84 22,169 25,9 27,333 25,75 26,33 26,336 26, Active listings 6,173 6,2 6,125 4,87 5,282 5,624 5,716 5, Months supply Median price ($) 38, ,53 329, , , ,14 368, , Italics indicate percentage change. Sources: The Conference Board of Canada; Canadian Real Estate Association; CMHC Housing Time Series Database. New Condominium Apartment Market f 217f 218f 219f 22f Starts 17,45 12,862 22,695 18,291 15,181 15,177 15,238 15, Under construction 51,355 54,27 42,27 46,645 47,657 47,697 47,534 47, Completions 14,47 13,258 32,822 14,138 15,143 15,214 15,432 15, Complete and not absorbed 1, ,915 1,326 1, Absorptions 14,311 13,435 31,828 14,798 15,27 15,46 15,532 15, Months supply Italics indicate percentage change. Sources: The Conference Board of Canada; Canadian Real Estate Association; CMHC Housing Time Series Database. exceed 22 per cent in 216. Monthly mortgage payments in Toronto are anticipated to increase from $1,671 in 215 to $1,778 this year, the second highest of all the cities in this report, but still well below Vancouver s expected monthly payment of $2,284. Toronto s new apartment condominium market, meanwhile, set several records last year, including record absorptions, completions, and inventories. The vigorous activity in 215 was the direct result of a record number of starts in 212. Given this backdrop, it is not surprising that the numbers for 216 have not been as strong. In fact, both absorptions and completions are poised to fall by more than 5 per cent this year. Thankfully, absorptions will be higher than completions, allowing inventories to fall somewhat. The record number of complete and unabsorbed units in 215 has also chastened homebuilders. Starts of apartment condominiums are expected to fall from 22,7 units last year to 18,3 units in 216 and to 15,2 units in 217. Starts will remain fairly flat thereafter, to allow the number of complete and unoccupied units to become better aligned with its historical average. In fact, inventories are projected to fall from 1,325 units in 215 to about 76 units in 22.

19 Summer 216 Metropolitan Condo Outlook 15 Calgary Share of Population by Age Cohort f Sources: The Conference Board of Canada; Statistics Canada. Calgary s economy is forecast to strengthen gradually, in line with slowly rising oil prices. Employment in the city will stop falling this year and advance in 217. This will help kindle a recovery in housing demand. Accordingly, the median existing apartment price will level off this year and advance modestly in 217. Softness in the new apartment market is highlighted by large builder inventories, thanks to completion of boomera projects. Inventories are still high, so apartment starts will remain subdued this year and next. Rising oil prices should form the basis of an eventual improvement in Calgary s economy, although prices will stay well below their peak values of over US$1 per barrel. A return to boom times is thus not expected. While 216 looks like another year of economic contraction, with real GDP forecast to shrink 1 per cent, next year should see growth of 2.1 per cent. Employment eased over the winter but will rise modestly through the rest of 216, although not enough to prevent a drop for the year as a whole. For 217, we expect a tiny gain of.5 per cent. In 215, sales of existing apartment condominiums plunged as resident demand dried up. Only 3,621 units were sold, down more than a third from the recent peak of 5,529 units in 214. Volumes retreated further to an annualized rate of nearly 2,9 units in the first quarter of 216. We think Calgary sales have hit their trough Apartment Condo Construction (starts, units; share, per cent) 7, 6, 5, 4, 3, 2, 1, Apartment condo starts (left) Condo starts as a share of multiple starts (right) f 17f 19f Sources: The Conference Board of Canada; CMHC Housing Time Series Database. and will rise slowly through the remainder of 216, reaching an annualized pace near 3,1 units in the fourth quarter. This will put full-year sales just above 3, units. For 217, we expect sales to rise 4 per cent to nearly 3,17 units. Active listings of existing apartment units rose 23 per cent to 1,422 units in 215. The increase was due, at least in part, to falling sales, which left units on the market longer. It was the highest annual average for listings since 28. During the first half of

20 16 Metropolitan Condo Outlook Summer 216 Affordability and Apartment Condo Sales (share, per cent; sales, units) Sales to Active Listings and Price Change 16 Share of household income spent on mortgage (left) Existing apartment condo sales (right) 6, 1 Sales-to-active-listings ratio (left) Median price growth (right) f 18f 2f 5, 4, 3, 2, f 17f 19f 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 17f 19f Sources: The Conference Board of Canada; CMHC Housing Time Series Database f 17f 19f Sources: The Conference Board of Canada; Statistics Canada. 216, listings edged up to nearly 3, units a postrecession high. We expect active listings to fall through the remainder of 216, but still end the year up nearly 6 per cent, at roughly 2,25 units. For 217, improving sales will help cut active listings 23 per cent to roughly 1,7 units. Sagging sales and rising listings cut the sales-to-activelistings ratio to a record low 8.9 per cent in the second quarter of 216. This followed an 18 percentage point drop during 215 that brought the ratio to a five-year low of 21 per cent. Both readings point to a buyers state for Calgary s apartment market. For the rest of 216, we expect rising sales and easing listings to boost the sales-to-active-listings ratio to 13 per cent by yearend and 15 per cent in 217. The buyers market pulled the median apartment price down 2.4 per cent last year and will trim it another.3 per cent in 216. A 2 per cent price gain is our call for 217. This implies a peakto-trough price decline of roughly 3 per cent between 214 and 216 modest compared to the 12 per cent drop between 27 and 29. Calgary s new apartment market has been caught in the downdraft. Builders unsold inventory rose from nearly zero in the fourth quarter of 214 to over 4 units in the second quarter of 216. This resulted from a large excess of completions over absorptions in 215,

21 Summer 216 Metropolitan Condo Outlook 17 Resale Condominium Apartment Market f 217f 218f 219f 22f Unit sales 4,545 5,529 3,621 3,32 3,167 3,369 3,639 3, Active listings 947 1,16 1,422 2,247 1,726 1,629 1,764 1, Months supply Median price ($) 254, , 269, , ,86 282, , , Italics indicate percentage change. Sources: The Conference Board of Canada; Canadian Real Estate Association; CMHC Housing Time Series Database. New Condominium Apartment Market f 217f 218f 219f 22f Starts 2,736 6,79 4,51 2,414 2,58 2,691 2,793 2, Under construction 4,396 6,51 7,413 5,55 5,258 5,259 5,257 5, Completions 2,667 3,55 4,237 3,6 2,59 2,691 2,79 2, Complete and not absorbed Absorptions 2,949 3,95 3,966 3,69 2,71 2,721 2,799 2, Months supply Italics indicate percentage change. Sources: The Conference Board of Canada; Canadian Real Estate Association; CMHC Housing Time Series Database. following four straight years of greater completions. We expect completions to fall faster than absorptions this year, so inventories will fall through the rest of 216 but still end the year at a relatively high 31 units. Nervous builders will thus cut apartment starts nearly in half this year, to just over 2,4 units, and start 2,58 units in 217. Still, even with these cuts, Calgary apartment starts will remain well above their 29 low. costs among the cities covered in this report, with charges higher than in Edmonton, Québec, and Ottawa. Slight additional price erosion will cut Calgary s carrying costs another.5 per cent this year. And, because Calgary has the highest average household income among the cities covered here, mortgage payments will consume just 9.3 per cent of income this year. Only Edmonton is lower. Falling prices did have one benefit they cut principle and interest payments on Calgary s average apartment condominium by 4.4 per cent in 215. The city is middle-of the-pack, as measured against the carrying

22 18 Metropolitan Condo Outlook Summer 216 Edmonton Share of Population by Age Cohort f Sources: The Conference Board of Canada; Statistics Canada. Sagging energy prices have exacted a toll on Edmonton s economy and housing market. However, the effects have been relatively contained compared to the 29 recession. Slight economic growth awaits in 217, although employment will flatline this year and next. Residential demand has eased, leaving the city s apartment condominium market in a buyers state. Both sales and prices are forecast to dip this year and post only small gains in 217. The new construction market is also soft, with elevated inventories of unsold units pointing to a significant drop in starts this year and a lesser decline in 217. Edmonton s economy has been hit by the drop in oil prices, but the downturn will be modest compared to the 29 downturn and should end with a tiny real GDP contraction this year. Growth during the recovery will be modest by past standards, though only a 1.8 per cent advance is forecast for 217. This compares to real GDP hikes averaging over 4 per cent during the previous 2 years. Edmonton has avoided job losses thus far, with employment advancing 2.3 per cent to a record high in 215, but will suffer a tiny.4 per cent dip this year. A similarly miniscule job gain is our call for 217. Against this backdrop, residential demand, including that for condominiums, will level off this year and firm slightly in 217. Apartment Condo Construction (starts, units; share, per cent) 5, 4, 3, 2, 1, Apartment condo starts (left) Condo starts as a share of multiple starts (right) f 17f 19f Sources: The Conference Board of Canada; CMHC Housing Time Series Database. Sales of existing apartment condominiums inched higher during the winter and spring of 216, following a big drop during the fourth quarter of 215. However, they still averaged an annualized rate of only about 2,54 units during the first half of 216, compared to annualized quarterly volumes above 3,2 units in 214. Sales will hover near current levels during the second half of 216 and end the year down 6 per cent at roughly 2,55 units. We expect a small advance to

23 Summer 216 Metropolitan Condo Outlook 19 Affordability and Apartment Condo Sales (share, per cent; sales, units) Share of household income spent on mortgage (left) Existing apartment condo sales (right) f 18f 2f Sources: The Conference Board of Canada; Canadian Real Estate Association. 5, 4, 3, 2, 1, Sales to Active Listings and Price Change Sales-to-active-listings ratio (left) Median price growth (right) f 17f 19f 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 17f 19f Sources: The Conference Board of Canada; CMHC Housing Time Series Database f 17f 19f Sources: The Conference Board of Canada; Statistics Canada. nearly 2,6 units for 217, then annual increases near 2 per cent between 218 and 22. Resulting volumes will remain below the 214 peak of 3,187 units. Active listings of apartment condominiums jumped sharply as sales slowed, but both are now stabilizing. Still, even the listings drop we expect in the year s second half will leave listings averaging nearly 1,5 units, roughly 56 per cent above their 214 trough. The slight sales increase we expect in 217, along with cautious potential home sellers, should produce a significant listings decline. In the meantime, sales drops and listings advances have sliced the sales-to-active-listings ratio from roughly 28 per cent through most of 214 to only 14 per cent in the first half of 216, which is indicative of buyers conditions. Small sales gains will combine with easing listings to produce a ratio closer to 15 per cent in this year s second half. For 217, we expect a small sales gain, combined with a significant drop in listings, to lift the ratio to 18 per cent still in buyers market territory. Edmonton s median apartment price advanced 1.2 per cent in 215 despite a weakening market, but this softness will slice the median price 2.3 per cent this year. Slight market firming in 217 will underpin a modest 1 per cent price increase. Edmonton s new apartment condominium market has had a delayed reaction to the area s slowing economy. Absorptions remained above previous-year levels through the second quarter of 216. True, builders unsold