Calgary Alberta Mortgage and Real Estate News

The average rental apartment vacancy rate
in Canada’s 28 major centres(1) decreased slightly by 0.1 of a percentage
point to 2.6 per cent in October 2006 compared to last year, according to the
Rental Market Survey released today by Canada Mortgage and Housing Corporation
(CMHC).
    “Solid job creation and healthy income gains helped to strengthen demand
for both ownership and rental housing,” said Bob Dugan, Chief Economist at
CMHC’s Market Analysis Centre. “High levels of immigration were a key driver
of rental demand in 2006, as was the increasing gap between the cost of home
ownership and renting. These factors have put downward pressure on vacancy
rates over the past year.”
    “However near record levels of existing home sales and the high level of
housing starts in 2006 show that home ownership demand remained very strong,
and it continues to apply upward pressure on vacancy rates”. Adding to this is
the high level of condominium completions in some centres. Condominiums are a
relatively inexpensive type of housing for renters moving to home ownership.
Also, some condominium apartments are owned by investors who rent them out.
Therefore, high levels of condominium completions have created competition for
the rental market and have put upward pressure on vacancy rates.
    The centres with the highest vacancy rates in 2006 were Windsor
(10.4 per cent), Saint John (NB) (6.8 per cent), and St. John’s (NFLD)
(5.1 per cent). On the other hand, the major urban centres with the lowest
vacancy rates were Calgary (0.5 per cent), Victoria (0.5 per cent), and
Vancouver (0.7 per cent).
    In British Columbia, vacancy rates declined in Vancouver (down 0.7 of a
percentage point to 0.7 per cent) and Abbotsford (down 1.8 percentage points
to 2.0 per cent) between October 2005 and October 2006, but were unchanged in
Victoria (0.5 per cent). The rapid growth of British Columbia’s population and
the higher cost of homeownership continue to fuel strong rental demand. For a
third year, Victoria remains one of the tightest metropolitan rental markets
in Canada.
    In the Prairies, vacancy rates were down in four of the five metropolitan
areas. Very high net migration to the region and a significant jump in
mortgage carrying costs due to higher home prices put downward pressure on
vacancy rates. Edmonton’s vacancy rate decreased by 3.3 percentage points to
1.2 per cent between October 2005 and October 2006 - the sharpest drop among
Canada’s major centres. Vacancy rates decreased to 3.2 per cent in Saskatoon
(down 1.4 percentage points) and to 0.5 per cent in Calgary (down
1.1 percentage points).
    In Ontario, vacancy rates were lower in five of 11 major centres and
unchanged in two. The rising cost of homeownership, high immigration, and
improved job prospects for youth were largely responsible for boosting rental
demand across the province. These factors helped offset upward pressures on
vacancies triggered by higher condominium and rental apartment completions.
The vacancy rate in Ottawa decreased by one percentage point to 2.3 per cent,
while in Toronto the vacancy rate declined 0.5 of a percentage point to
3.2 per cent.
    Vacancy rates went up in three of Quebec’s six major centres and remained
unchanged in one. Low mortgage carrying costs continued to draw renter
households toward homeownership. This, combined with weak job opportunities
for youths, held back growth in rental demand. Completions of rental units
targeting seniors also helped boost vacancy rates in some Quebec centres.
Gatineau’s vacancy rate increased from 3.1 per cent in October 2005 to
4.2 per cent in October 2006, while the vacancy rate in Montréal increased by
0.7 of a percentage point to 2.7 per cent over this period. Québec saw a
modest 0.1 percentage point increase in its vacancy rate to 1.5 per cent.
    In the Atlantic region, vacancy rates increased in both St. John’s (NFLD)
(up 0.6 of a percentage point to 5.1 per cent) and Saint John (NB) (up
1.1 percentage points to 6.8 per cent). The vacancy rate in Halifax edged down
by 0.1 of a percentage point to 3.2 per cent. Slower employment growth,
out-migration, and low mortgage carrying costs have weakened demand for rental
housing and put upward pressure on vacancy rates in Atlantic Canada.
    The highest average monthly rents for two-bedroom apartments in new and
existing structures were in Toronto ($1,067) and Vancouver ($1,045), followed
by Calgary ($960) and Ottawa ($941). The lowest average monthly rents for
two-bedroom apartments in new and existing structures were in Trois-Rivières
($488) and Saguenay ($485).
    By excluding the impact of new structures built since the last survey and
conversions from the calculation, we can get a better indication of the rent
increase in existing structures. The greatest rent increases occurred in
markets where vacancy rates were lowest in 2006. Rents in existing structures
were up 19.5 per cent in Calgary, 9.9 per cent in Edmonton, 5.1 per cent in
Greater Sudbury and 4.4 per cent in Vancouver. Overall, the average rent for
two-bedroom apartments in existing structures across Canada’s 28 major centres
increased by 3.2 per cent between October 2005 and October 2006. Excluding
Calgary and Edmonton, the average rent for two-bedroom apartments in existing
structures was up only 2.4 per cent in 2006 compared to 2005.
    With the release of its 2006 Rental Market Survey, CMHC has broadened its
coverage of the rental market to include apartment condominiums offered for
rent in the following centres: Vancouver, Calgary, Edmonton, Toronto, Ottawa,
Montréal, and Québec. In 2006, vacancy rates for rental condominium apartments
were at or below one per cent in five of the seven centres surveyed. Rental
condominiums in Vancouver and Toronto had the lowest vacancy rate at 0.4 per
cent. On the other hand, Québec and Montréal registered the highest vacancy
rates for condominium apartments at 1.2 per cent and 2.8 per cent in 2006,
respectively. The survey showed that vacancy rates for rental condominium
apartments in 2006 were lower than vacancy rates in the conventional rental
market in all the surveyed centres, except Montréal and Calgary. The highest
average monthly rents for two-bedroom condominium apartments were in Toronto
($1,487), Vancouver ($1,273), and Calgary ($1,257). All surveyed centres
posted average monthly rents for two-bedroom condominium apartments that were
higher than average monthly rents for two-bedroom private apartments in the
conventional rental market in 2006.
    In Toronto, Montreal, and Vancouver, the scope of CMHC’s Rental Market
Survey was further extended to gather information on monthly rents in dwelling
types(2) other than private apartments and condominium apartments such as
duplexes and accessory apartments. The results showed that the average monthly
rent for a two-bedroom unit in the secondary rental market was lower than the
average rent in both the conventional and condominium apartment markets in
Montréal and Vancouver. In Toronto, the average monthly rent for a two-bedroom
unit in the secondary rental market was slightly higher than in the
conventional rental market.
    Starting in 2007, CMHC will be conducting a rental market survey in the
spring, in addition to the one conducted in the fall. The results of the
spring survey will be published in June and will provide centre-level
information on key rental market indicators such as vacancy rates and average
rents.

Canadian new-home construction unexpectedly accelerated in November, as builders began work on more apartments and condominiums.Housing starts rose to 225,000 from 223,200 in October, the Canada Mortgage and Housing Corp. said today in Ottawa. Economists predicted housing starts would decline to 220,000 units, according to the median of 20 estimates in a Bloomberg News survey.

Starts of urban multifamily units increased 5.7 percent to 105,600 units. Urban single-family housing starts fell 4.2 percent to 87,900 units.

Today’s report adds to other signs this week of a stronger Canadian housing market. Canadian building permits surged unexpectedly to the second-highest ever in October, led by multifamily houses and commercial buildings such as hotels and restaurants, Statistics Canada said Dec. 6.

The Bank of Canada said in a Dec. 5 interest-rate announcement that risks to Canada’s economy are balanced between faster-than-expected consumer spending and home price gains, and a U.S. slowdown that crimps exports. The central bank kept its benchmark rate unchanged at 4.25 percent for the fourth straight meeting, after seven consecutive increases from September 2005 to May.

Housing starts in the Calgary area jumped 36% last month from a year ago, according to the Canada Mortgage and Housing Corp.

The November activity brings the number of year-to-date housing starts in the city to a total of 15,547 units, up 22% over the first 11 months of 2005.

“Apartment and semi-detached construction were both very strong in November,” said Lai Sing Louie, CMHC’s senior market analyst for Calgary.

“You would have to go back to the late 1970s to see apartment and semi-detached volumes exceeding this level of production in November.”

Multi-family starts climbed to 771 last month, more than double the number in November 2005.

Single-detached starts for November, meanwhile, were slightly higher than a year ago, rising to 726 units.

“With November’s activity, single-detached starts have already set a new annual record level of production and there is still one more month in this year to raise the total,” said Louie.

Across Alberta, construction began on 46,600 units last month, a 47% increase from October.

And nationwide, Canadian housing starts were stable, edging up 0.8% from October to November.

“With just a single month remaining under wraps, it is safe to say that 2006 has been a very good year for Canada’s housing market,” said TD economist David Tulk.

“With a cooling economy on the horizon, the spotlight has begun to shift to the future and while this year’s estimated tally of 228,000 starts may be a tough act to follow, 2007 will likely deliver a solid performance.”

Tulk is forecasting 205,000 starts across the country next year and 195,000 in 2008.

The numbers are expected to be buoyed by low inventories of new and existing homes and strong demand, driven by low unemployment, growth of disposable income and continued immigration.

The Bank of Canada says the country’s economic sectors “remain solid” on a favourable global outlook, ready to withstand potential shocks of an abrupt slowdown in the U.S. economy.In its most recent Financial System Review, the bank said Thursday it sees no major red flags that threaten to derail the country’s finances.

“Canada’s financial, non-financial and household sectors are in good shape,” the bank said in the review.

“This reflects the continued prudent behaviour of companies in the financial and non-financial sectors, as well as a generally favourable economic environment in Canada and abroad.”

Among the risks faced by Canada’s financial system are the short-term threat of the U.S. economy slowing more sharply than anticipated, “a disorderly resolution of global imbalances” and a large and widespread reduction in risk appetite.

“Thus, the overall level of risk has increased somewhat” from the last review in June, “despite the fact that the risk of a disorderly resolution of global imbalances seems to have diminished.”

Even if those risks materialize, “the Canadian financial system appears to be in a good position to withstand these potential shocks,” the central bank said.

On Tuesday, the bank kept its key overnight lending rate at 4.25 per cent, which observers said indicates the bank isn’t likely to start shaving rates before next spring.

In its last rate-setting announcement of the year, the central bank said global growth remains strong, commodity prices are still high and domestic employment growth has continued.

The bank hasn’t changed the key interest rate since May, when it rose a quarter of a percentage point.

The value of Canadian building permits soared to near record highs in October, propelled by an increase in demand for multi-family and commercial dwellings. 

Strong performances by Alberta and British Columbia pushed construction intentions past the $6 billion mark for the second time on record. 

Calgary has already set a record for yearly totals with two months left to go. The last time the value of Canadian permits was this high was last December, when they were valued at $6.3 billion. 

In Toronto, the value of building permits rose by 3.5 per cent from September to pass the $1 billion mark for the second time this year. 

But despite the city’s strong performance, the picture was murkier in Ontario as the value of permits declined by 1.8 per cent from $1.96 billion in September to $1.92 billion this month. 

“In the non-residential sector, which drove the decline in October, basically it’s the industrial component that declined because commercial and institutional were up,” said Etienne Saint-Pierre, an analyst at Statistics Canada. 

Saint-Pierre noted the value of Ontario’s industrial sector permits fell by 40 per cent from September to $119,300,000 in October. Hurting Ontario, he notes, is its struggling manufacturing sector. 

“I think the big picture is construction is slowing east of Manitoba,” said housing analyst Will Dunning. 

Though Ontario is still close to the peak in construction it experienced during the last two years, Dunning said, “it’s likely to slow a little bit but only very gradually the coming year.” 

On the other hand, Ontario’s residential fortunes have continued to rise as permit values showed a 2.6 per cent increase based on strong gains in proposals for multi-family dwellings. 

In a separate report, the Toronto Real Estate Board said the GTA’s resale housing market remained strong in November.About 6,281 homes were resold last month, compared with 6,646 last year. 

“The market is holding very steady as we progress through autumn and we are seeing a good level of activity across the board,” said Dorothy Mason, president of the board.

The Canadian dollar should ease gradually versus the U.S. dollar over the next 12 months as a slowing U.S. economy hampers Canadian exports, while moderating commodity prices pinch revenues in Canada’s resource-rich West, a Reuters poll showed on Wednesday.After soaring more than 40 percent in the four years since 2002, the currency is now unwinding its gains, analysts say, as formerly Canada-positive factors stop working in the currency’s favor.

In three months’ time, the currency is seen at C$1.14 to the greenback, or 87.72 U.S. cents, representing a slight retracement of its recent steep losses. This is according to the median estimates of 50 foreign exchange forecasts polled by Reuters.

But analysts expect slowing U.S. economic growth will continue to sour sentiment on both currencies, with the Canadian dollar bearing the added brunt of retreating commodity prices.

“The same sentiment that’s dragging the U.S. dollar down against most currencies out there is dragging the Canadian dollar down,” said Marc Levesque, chief fixed-income strategist at TD Securities.

In six months, the Canadian dollar is expected at C$1.15 to the U.S. dollar, or 86.96 U.S. cents. In 12 months, analysts see it at C$1.1550, or 86.58 U.S. cents.

The Canadian dollar hit a 28-year high of C$1.0948, or 91.34 U.S. cents, in May, but has been on the retreat since then as the Bank of Canada ended its string of seven-straight interest rate hikes, while signs of North American economic weakness have shifted currency flows to Europe.

Recent data have shown the Canadian economy losing momentum in recent months, and purchasing data released on Wednesday suggested the same.

While consensus currency estimates are for weakness, several analysts say the Canadian dollar will regain ground over the coming year on notions that U.S. interest rate cuts will be more severe than Canada’s.

“We feel that monetary policy in the U.S. is slightly restrictive, whereas in Canada, the 4.25 overnight rate is more neutral and that as the Fed becomes confident that inflation remains well behaved, they will remove that restraint,” said Paul Ferley, assistant chief economist at Bank of Montreal.

Others see resilient commodity prices bolstering the Canadian dollar, but most feel the risks for commodities are tilted to the downside, partly due to reduced consumption in the U.S. economy.

RBC Capital Markets, which predicts the Canadian currency falling sharply over the next year, sees both energy and metals prices pulling it lower, with oil prices sticking close to the $60 per barrel level, while metals ease.

“We see some correction in the base metals market, but not a collapse,” said RBC currency strategist Matthew Strauss.

In its final interest-rate-setting announcement of the year, the Bank of Canada kept its key overnight rate at 4.25 per cent. 

As Toronto Dominion Bank economist David Tulk said yesterday, it was “a move that shocked nary a soul.” 

This was the fourth consecutive decision to leave the overnight rate unchanged at its highest level in more than five years. The next scheduled announcement is Jan. 16. 

Every few weeks, the bank meets to determine the target for the interest rate financial institutions use to lend money to one another for a day. 

The rate is the Bank of Canada’s main tool to set monetary policy and exert its control on the economy. 

Output growth in the final quarter of 2006 may be weaker than expected, the bank said in a statement released yesterday. 

The bank also expects the consumer price index and core inflation to converge at 2 per cent in the second half of 2007. 

Despite upside and downside risks to growth, the bank found these risks to be “roughly balanced” and left its inflation projection for 2007 unchanged. 

“Despite a weakening economy, the bank is waiting for more evidence before changing their views,” Tulk wrote in a research note. 

Tulk expects the “evidence of mounting economic slack will cause the bank to start shifting the balance of risks to the downside — priming the market for the first of two 25 basis point cuts due two meetings later in April.” 

Adrienne Warren, senior economist at Scotia Capital, also anticipates an interest rate cut of about 50 basis points, or half a percentage point, by mid-2007. 

“We are seeing a moderation of growth in Canada,” she said. 

Examples of the economy slowing include third-quarter gross domestic product growth of 1.7 per cent, while the government had expected 2 per cent; a slowing U.S. economy, which could lead to greater weakness in Canadian export growth; and the cooling of the housing market. 

Tulk labelled the anticipated interest rate cuts “an insurance policy against the risk of slower growth.” 

The central bank is waiting for more evidence before changing its view of risk, said Tulk.

Canadian business and government spending accelerated less than expected in November, and consumer confidence dropped, reports today showed.The Ivey purchasing managers’ index fell to 52.8, the lowest reading in 11 months, from an October reading of 59.5. Figures greater than 50 indicate purchasing increased. A separate report, from the Conference Board of Canada, showed consumer confidence fell in November to the lowest this year.

The reports suggest the economy is still in the midst a slowdown that Bank of Canada Governor David Dodge predicted would be “mild” and “short-lived.” The Bank of Canada will probably cut the benchmark interest rate in next year’s third quarter, as growth and worries about inflation ebb, according to economists polled by Bloomberg News last month.

The central bank kept its benchmark rate unchanged yesterday, saying the economy will operate above capacity until mid-2007 even as it grows less in the fourth quarter than policy makers predicted in October.

The consumer confidence index fell 2 points to 119, according to the survey of 2,000 taken between Nov. 1 and Nov. 6, as Canadians felt their financial situation had worsened and fewer planned major purchases, the Conference Board said.

Economists expected the Ivey survey to show a reading of 60, according to the median of 16 estimates gathered by Bloomberg News. November was the third-straight month the index slowed, according to the monthly survey of 175 purchasing managers by the Ivey School of Business in London, Ontario. The figures are not seasonally adjusted.

Ivey Details

The survey’s price index decreased to 55.2 from 61.8. The employment index also fell to 53.4 from 56.9, signaling fewer Canadians found work.

The supplier-deliveries measure fell to 40.7 from 44, suggesting orders took longer to fill. The inventory gauge declined to 45.8 from 56.1 as stockpiles shrank.

The Canadian dollar fell to 87.15 U.S. cents at 4:08 p.m. in Toronto, from 87.54 U.S. cents late yesterday.

A seasonally adjusted index prepared by J.P. Morgan Securities showed a smaller decline. The adjusted “sentiment index” fell to 54.1 in November from 56.9 in October. That’s consistent with economic growth in the range of 2.5 percent to 3 percent, economist Ted Carmichael said in a note to clients.

The Bank of Canada left its key interest rate unchanged on Tuesday, and said there has been little recent movement in its outlook for the economy and inflation.

The overnight rate — the rate that large banks can charge each other for overnight loans — remained at 4.25 per cent, where it has been since May 24 when the central bank bumped up the rate by one-quarter of a percentage point.

In a commentary accompanying its rate decision, the bank said the overall inflation rate and the core inflation rate — which omits several volatile factors, such as energy and food — are expected to converge at two per cent by the middle of next year.

The bank said the main upside risk relates to the momentum in household spending and housing prices, while the main downside risk is that the U.S. economy could slow more sharply than expected, leading to a reduction in Canadian exports.

“The bank judges that, overall, risks around the inflation projection are roughly balanced,” it said.

The bank’s steadfastness had been widely projected by economists.

“The bank’s comments point to unchanged policy at the next fixed announcement date on Jan. 16, and likely beyond,” said Bank of Montreal senior economist Sal Guatieri. “We continue to expect rates to remain stable through 2007.”

Most economists see the central banking cutting rates in the first half of the year. CIBC World Markets, for example, sees a quarter point cut in March and three more cuts later in the year. 

TD Bank economist David Tulk forecasts a quarter of a percentage point cut in April. “It is important to note that this comparatively modest amount easing does not signify the start of a new easing campaign but rather reflects the Bank taking out an insurance policy against the risk of slower growth,” he said.

Last week’s unemployment report — the last major piece of economic news before Tuesday’s interest rate decision — did little to convince economists that the central bank would alter its course in the short term.

The November jobless rate came in at 6.3 per cent, up a 10th of a percentage point from October. The economy added 22,400 new jobs, but the unemployment rate ticked up as more people looked for work.

On Oct. 17, the date of its most recent interest-rate decision, the central bank said it had lowered its 2006 national growth forecast to 2.8 per cent from its earlier forecast of 3.2 per cent. Its 2007 outlook was also cut to 2.5 per cent from 2.9 per cent. The 2008 growth forecast remained unchanged at 2.8 per cent.

The bank’s next interest-rate decision is scheduled for Jan. 16, 2007, which is two days prior to the release of its next update on its outlook for the Canadian economy.

Canadian benchmark 10-year notes rose for the fourth straight week, pushing yields to a 15-month low, after a government report showed the economy unexpectedly slumped in September.Data released Nov. 30 showed gross domestic product contracted in September for the first time in 18 months. Growth slowed to the least in three years during the third quarter.

“The Canadian bond market could rally further,” said Don Drummond, chief economist at Toronto-Dominion Bank. “There’s no doubt that the Canadian economy has been struggling.”

The 10-year note’s yield fell 10 basis points, or 0.10 percentage point, this week to 3.87 percent, the lowest since September 2005. The price of the 4 percent security maturing in June 2016 rose 79 cents to C$101.07. Bond yields move inversely to prices.

The Canadian currency declined this week against all but the South African rand among the 16 most actively traded currencies tracked by Bloomberg, to 87.42 U.S. cents. One U.S. dollar buys C$1.1440. Canada’s dollar dropped 2.4 percent so far during the fourth quarter.

The economy shrank 0.3 percent in September, compared with a 0.3 percent gain in the prior month, according to a report released by Statistics Canada. Growth slowed to a 1.7 percent annualized rate in the third quarter from 2 percent in the April- through-June period.

The September contraction of Canada’s economy was the most since March 2002, excluding August 2003, when a power blackout in Ontario interrupted production in Canada and the U.S.

Mild Slowdown

The report on Canadian gross domestic product, the total of all goods and services produced in the country, adds to evidence the economy is experiencing what Bank of Canada Governor David Dodge on Nov. 6 called a “mild” slowdown.

Evidence of economic weakness in the world’s eighth-largest economy may boost speculation the Bank of Canada will lower interest rates early next year.

The yield on the March bankers’ acceptances futures contract fell to 4.08 percent yesterday, from 4.20 percent last week. The decline indicates investors are boosting bets the Bank of Canada will cut its 4.25 percent benchmark interest rate early next year.

Bankers’ acceptances futures settle at a three-month lending rate that has averaged 16 basis points above the central bank’s rate target since Bloomberg started tracking the difference in 1992.

Interest Rates

The central bank, which raised interest rates seven times before pausing in July, is expected to keep its benchmark rate unchanged at its next meeting on Dec. 5, according to economists surveyed by Bloomberg News.

“The chances of any easing when they make their announcement on Dec. 5 are slim to none,” said John Clinkard, chief economist at Deutsche Bank Securities in Toronto. “We don’t see any imminent easing of policy looking into mid-2007.”

Canadian 10-year government bonds yield about 56 basis points less than comparable-maturity U.S. Treasuries. The difference was 77 basis points in May, the largest this year.

“We will be paying close attention to the tone of the Bank of Canada communiqué to see which way they are leaning,” said Carlos Leitao, chief economist with Laurentian Bank Securities in Montreal. “Some sectors in the market seem to be pushing the bank to lower rates soon.”

Canada’s central bank predicts the country’s economic growth will narrow to 2.5 percent in 2007 from 2.8 percent this year, as the U.S. economy weakens.

In the U.S., a manufacturing index compiled by the private Institute for Supply Management fell to 49.5 in November, from 51.2 in October. A reading below 50 signals contraction.

“The weak ISM indicated that U.S. demand also weakened,” Leitao said. “If that is the case, than Canada, as a large exporter to the U.S., would fall immediately on this weakening in U.S. domestic demand” for Canadian exports.

A slowdown in the U.S. economy may hurt Canada, which ships more than 80 percent of its exports to the U.S.