Housing looks good, but other areas have excess capacity

Derek Abma
Province

While the Canadian housing market has put the past year’s recession and market crisis behind, other real-estate segments are still struggling to get back on track, according to a report released Wednesday.

The overall Canadian real-estate market has seen property values down between 10 and 20 per cent from their peaks; and a slow recovery should take hold late next year, according to a joint report by Pricewaterhouse

Coopers and the Urban Land Institute.

The report rated cities such as Vancouver, Ottawa and Toronto as some of the better spots to invest in real estate, with Halifax and Calgary the weakest among major markets.

Such an assessment is somewhat sombre in comparison with trends in the housing market, where the latest report from the Canadian Real Estate Association shows both sales levels and prices back in record territory.

Frank Magliocco, leader of PwC’s Canadian real-estate practice, said the difference between residential real estate and everything else comes down to one of the first rules of economics — supply and demand. “I think when you look at the inventory levels of homes, we don’t have a big issue there,” he said.

“We’re a lot closer to, what I’d say, equilibrium in terms of supply and demand [in the residential market].”

There is a greater amount of excess capacity in other segments, such as in facilities used for manufacturing purposes, he said.

Magliocco added that some homebuyers in Ontario and B.C. might be trying to purchase before these provinces implement harmonized sales taxes next July, adding new costs to buying a home.

Magliocco said much of what will happen in Canada’s real-estate market depends on how successful the U.S. is in its economic recovery, given how closely the two North American economies are intertwined.

While Canadian properties were not as severely affected as other places, namely the U.S., the PwC/ULI report says better investment opportunities might exist outside Canada. “If someone surmises that [the U.S.] may be at the bottom now, as they correct, there may be a better uptick,” said Magliocco.

© Copyright (c) The Province

Hit is 20 to 30 per cent in 2009 compared with values in ’08, report says

Derrick Penner
Sun

The recession took a 20- to-30-per-cent bite out of Lower Mainland industrial land values in 2009 compared with a year ago, according to a report released Tuesday by commercial realtor Avison Young.

Rob Gritten, a principal in Avison Young’s Vancouver office, said the statement is based on some sales in the past year compared to current asking prices, although there have been few industrial-land sales due to the contraction of B.C.’s economy.

“Part of our dilemma has been that there has not been very much [volume of sales],” Gritten said in an interview.

However, he said the evidence market players do have points to a trend of declining asking prices, with few buyers in the market.

The completion of new industrial properties and firms cutting back on their own space and subleasing some of it out are helping drive up vacancy rates and giving users options to lease, which curbs demand for new development, he said.

The Avison Young report noted that Metro Vancouver’s industrial-property vacancy rate rose to 4.4 per cent in the third quarter of 2009 from 3.2 per cent in the spring, and an absolute low of two per cent between early 2006 and mid-2008.

Gritten said he has looked at a couple of particular examples. In one, at the Campbell Heights industrial development in Surrey, there is a parcel of unserviced land for sale with an asking price of $480,000 an acre, right next to a property bought for about $704,000 an acre in 2008.

“This [situation] needs to be tempered against the fact that values significantly increased in the 36 months prior to the collapse,” Gritten added.

Values doubled between 2003 and 2008, he said, so values now are still significantly ahead of the pre-peak period.

“So a lot of [buyers] are still ahead of the game,” Gritten said. “The [buyers] who got caught are the speculators, guys who went in and thought they could flip land, or buy land, service it and have someone come along and pay more.”

Paul Richter, an analyst at the real estate research firm RealNet Canada Inc., agreed that industrial land prices have come down, but was hesitant to estimate to what degree given the low number of sale transactions.

The reasons for the drop in demand, Richter said, include the general contraction of the economy that has forced companies to reassess their plans, but the difficulty in financing such projects is still part of the situation.

“Lending is probably one of the biggest issues,” Richter said.

However, Gritten said the industrial market does appear to be stabilizing. In its report, Avison Young said the perception is increasing that “the worst of the economic contraction is over and the marketplace is beginning to witness incremental improvements.”

© Copyright (c) The Vancouver Sun

Province

The value of industrial land in Greater Vancouver has fallen by up to a third over the past year as sellers slashed the price of properties, Avison Young said Tuesday.

Industrial-land values in the area have fallen by as much as 25 to 30 per cent over the past year, Avison Young principal Rob Gritten said.

“If there is no demand to build, it is no surprise vacant land is the first asset to be disposed of,” Gritten said.

“Speculators who entered this market in the late stages of the bubble, and with no income to support carrying costs, have been forced to discount significantly to attract bids.” In a report, the real-estate services firm said the regional market has seen few land sales over the past six months, leaving sellers with “more realistic expectations.” Average land prices in the region doubled from 2003 to 2008, reaching about $600,000 an acre in Abbotsford and $2 million in Vancouver, Avison Young said.

At the moment, regional prices typically range from $400,000 to $1 million per acre, depending on location and condition, the report said.

The exceptions are Vancouver and the North Shore, where limited supply has kept values at more than $2 million per acre, Avison Young said.

The industrial vacancy rate in Greater Vancouver climbed to 4.4 per cent in the third quarter of 2009 from 3.2 per cent in the spring of this year and 2.4 per cent in the fall of 2008.

“While some tenants tried to hang on to see if they could weather the storm, many couldn’t and had to close or reduce their square footage,” Avison Young principal John Lecky said.

“However, this trend is not expected to continue.” The region’s overall vacancy rate is still among the lowest in North America, the report said.

© Copyright (c) The Province

J.W. Elphinstone, AP Real Estate Writer
USA Today

A real estate group says home prices fell in eight out of every 10 U.S. cities in the third quarter of this year, as heavily discounted distressed sales made up 30% of all deals.

But home sales continued their climb, with quarterly sales outpacing the second quarter and the previous year’s figures, the National Association of Realtors said Tuesday.

The median sales prices of existing homes declined in 123 out of 153 metropolitan areas compared with the same period a year ago. Prices rose in the other 30 cities.

The national median price clocked in at $177,900, or 11% below the third quarter last year.

“The decline in the national median price has moderated recently, and a shrinking supply of unsold inventory suggests we are getting closer to price stabilization in many areas, “ said Lawrence Yun, the group’s chief economist, in a statement. “But we need a steady stream of financially qualified buyers to further reduce inventory and get us to a self-sustaining market.”

Prices in Fort Myers, Fla., plunged 40% to $98,000 from a year ago, the worst in the nation. Las Vegas saw its median price tumble almost 35% to $138,500 year-over-year.

The largest price gain, by contrast, was in Cumberland, Md., where prices jumped 19% to $122,100. Davenport, Iowa, followed with an increase of 14% to $115,600.

The federal tax credit of up to $8,000 for first-time homebuyers helped boost sales in the third quarter. U.S. home sales grew in 45 states from the second quarter, with 28 states posting double-digit gains.

Total quarterly sales hit a seasonally adjusted annual rate of 5.3 million, up more than 11% from the second quarter.

President Barack Obama signed a bill last week extending and expanding the federal tax credit. Now, buyers who have owned in their current homes for at least five years are eligible for tax credits of up to $6,500. First-time homebuyers — or anyone who hasn’t owned a home in the last three years — would still get up to $8,000. To qualify, buyers have to sign a purchase agreement by April 30, 2010, and close by June 30.

Copyright 2009 The Associated Press. All rights reserved

Canada Mortgage and Housing Corporation numbers jump in Metro area compared to October 2008

Scott Simpson
Sun

Single-family housing starts in October continued to be a relative bright spot for British Columbia’s residential construction industry.

Housing start numbers released by Canada Mortgage and Housing Corporation show construction of single detached homes rose 38 per cent last month in the Vancouver census metropolitan area compared to October 2008 — and an average 26 per cent in urban centres across the province.

Victoria and Prince George saw the biggest jumps on a percentage basis, both recording single family housing start increases in excess of 80 per cent for the month.

The single family starts echo improvements that CMHC noted in September 2009.

Multiple family unit starts were down 68.3 per cent in the Vancouver area, and 57.7 per cent in urban B.C. compared to October 2008.

For starts in all housing types combined, October finished with the second-highest month tally in the year to date, with 892 starts, including 383 in Surrey and 139 in Coquitlam.

The seasonally adjusted annual rate for home starts in urban B.C. jumped to 16,100 units compared to 14,000 in September.

At the national level, the rate for annual housing starts was 157,300 units in October, up from 149,300 units in September.

Year to year, the percentage declines for all housing types remain substantial — down 73 per cent in the City of Vancouver, 72 per cent in West Vancouver, 77 per cent in Coquitlam-Port Coquitlam-Port Moody, 58 per cent in Burnaby-New Westminster and 76 per cent in Abbotsford.

However, CMHC senior market analyst Robyn Adamache noted in an interview that 2008 began as a peak construction year.

Vancouver housing prices peaked in February 2008 before dropping 17 per cent and in most municipalities in the region are still below that level.

“We are absolutely comparing ourselves to a boom year,” Adamache said.

In a statement accompanying release of the CMHC’s October numbers, Adamache said “the momentum of increase over the past three months is heartening.”

“Single-detached home construction continues to show strength, especially in Surrey. We are beginning to see a return of some larger scale multiple-unit residential projects, which were virtually absent during the earlier part of this year.”

CMHC reported that new home construction in Canada rose 5.4 per cent in October — 157,300 units on a seasonally adjusted annual basis, up from 149,300 in the previous month.

Economists had expected housing starts to increase by between 155,000 and 158,800 units during the month.

“The improvement in housing starts in October is attributable to improvement in the multiple starts segment,” Bob Dugan, CMHC’s chief economist, said.

Millan Mulraine, economics strategist at TD Securities, said the October report “adds to the growing list of indicators that have been pointing to a recovery in the Canadian housing market, though the rebound in residential construction has remained fairly modest.” He added that with home purchasing continuing to rise, “given the relatively cheap borrowing rate and favourable buying conditions, we expect the recovery in residential construction to remain on track in the coming months.”

© Copyright (c) The Vancouver Sun

Hike new pointer to market revival, analyst says

Province

New-home construction in urban B.C. rose 15 per cent between September and October, Canada Mortgage and Housing Corp says.

Housing starts in B.C.’s urban centres climbed to 16,100 in October on a seasonally adjusted annual rate from 14,000 in September, CMHC said yesterday.

Nationally, starts rose 5.4 per cent in October as the housing market continued to show signs of recovery. CMHC said that 157,300 units in rural and urban areas were started in October, on a seasonally adjusted rate, up from 149,300 in September.

Economists had expected housing starts to rise by between 155,000 and 158,800 units during the month.

“The improvement in housing starts in October is attributable to improvement in the multiple-starts segment,” Bob Dugan, CMHC’s chief economist, said. “Despite a small decline in single-home starts in October, the level of single-home starts remains at its second highest level since October 2008.”

Urban housing starts rose 5.2 per cent on an adjusted annual basis to 139,900 units last month, with multiple-unit construction jumping 13.8 per cent to 72,600 units. However, urban single-unit starts fell 2.7 per cent to 67,300 units in October.

Millan Mulraine, economics strategist at TD Securities, said the October report “adds to the growing list of indicators that have been pointing to a recovery in the Canadian housing market.”

He said that with home purchasing continuing to rise the recovery in residential construction should remain on track in the coming months.”

Urban starts rose 14.8 per cent in Ontario, 6.5 per cent in the Prairies and 1.2 per cent in the Atlantic region. Quebec saw urban starts fall 11.6 per cent.

© Copyright (c) The Province

Derek Abma
Sun

Canadians will be looking to reports on housing starts and international trade this week for some reassurance the economy is indeed improving.

That’s after recent disappointing figures for employment and gross domestic product — not to mention slumping stock markets up until this past week — put a damper on hopes for a strong economic recovery.

Today, Canada Mortgage and Housing Corp. will announce housing starts for October. Economists, on average, expect an annualized rate of 156,800 homes got their construction underway last month, which would be a gain of about five per cent from September.

The new-home market, while lagging the red-hot resale sector, has shown steady growth in recent months after going as low as an annualized rate of 118,500 starts in April.

With some particularly high expectations for multiple-housing units, TD Securities strategist Millan Mulraine is optimistic about the coming housing-starts report.

“Indeed, with residential-permit approvals rising at a double-digit pace in both August and September, and construction employment rising for the third straight month in October, we expect building activity to rise to 160,000 in October,” he said in a research note Friday. “This will mark the highest level of new residential building activity since December last year.”

CIBC World Markets is expecting the same quantity of housing starts.

“Low interest rates and a return of consumer confidence have boosted demand and resulted in home prices taking off again, encouraging builders to get back to business, as suggested by the steep increase in building permits in recent months,” CIBC economist Krishen Rangasamy wrote in a report.

Relating to the same industry, Statistics Canada’s new-housing price index for September is to be released Thursday. Economists expect a 0.2 per cent gain, which would be the third straight month of higher prices.

This Friday, economists expect the same federal agency to report another trade deficit for September. It would be the seventh shortfall in 10 months. While Canada’s practice of taking in more in trade than it ships out is becoming the norm, one should remember that last December’s deficit marked the end of a string of surpluses that began in 1976. Canada had a trade deficit of $2 billion in August.

“After 33 years of running quarterly merchandise trade surpluses, Canada is now stuck in the red,” said Rangasamy. “September may have seen a small improvement to a deficit of around $1.5 billion, despite the drop in energy prices in the month.”

He cited a better U.S. economy and a pickup in auto sales as helping Canada’s trade performance.

Mulraine expects the trade deficit to have widened in September, partly because of the strong loonie eroding the competitiveness of Canadian goods.

“In September, we expect the Canadian trade deficit to widen to $2.2 billion, which will be the highest level of trade deficit on record,” he said. “During the month, exports are expected to rise marginally, though higher imports should offset any gains in export trade.

“In the months ahead, with the strong Canadian dollar continuing to wreak havoc on the Canadian export base, we expect net exports to remain relatively unsupportive to overall economic activity.”

© Copyright (c) The Vancouver Sun