A delayed 2014 4th Quarter Real Estate Review along with a quick glimpse and projections of what to expect in the first quarter of 2015.
Firstly, sorry for the delay on this review. As many of you know, Mike and I made a big career change and moved our practice over to the brand new Trillium West Real Estate Brokerage. Three months in and we are still very excited about what this change means to you! Curious? Give us a call as we would love to catch up, ideally over a coffee or tea at our new office.
We now have a new source of data to analyze and digest (Thank you Alan Mason – a.k.a, our new broker). This data, in addition to the CMHC reports and Statistics Canada website I have been using previously, can only aide me in my search for clues and keys as to where the opportunities and dangers may be found in today’s real estate market.
Content Index
1- National and international indicators
2- Ontario numbers and forecasts
3- Guelph and area data and forecasts
4- Summary and opportunities
1 -National and International Data and Forecasts
To start things off we have seen/heard a lot of international analysts expressing concerns surrounding Canada’s real estate market becoming/being overvalued. This concern is partially derived from Canada’s average home price increase being greater than that of Australia, U.K. and the U.S. This report, available at:
https://www03.cmhc-schl.gc.ca/catalog/productDetail.cfm?cat=70&itm=77&lang=en&fr=1425524886266 goes through a series of checks and balances to ultimately conclude that although we are at risk of overvaluation we are not yet there. Restraint on the behalf of builders seems to be the number one thing that can aide in avoiding an overvalued real estate market and in-turn, a real estate recession. Nationally we are currently rated as “low risk” for over evaluation. Toronto, Montreal and Quebec City are at moderate risk of being overvalued with risk of over building in these cities on the rise and coupled with property value increases out-pacing the increase in disposable income.
I had voiced similar concerns (re; builder restraint, particularly in regards to multi-unit construction) in previous reports and have been happy to see some slowing in multi-unit starts in Ontario as a whole and in Guelph.
The Tar-sands are certainly feeling the sting of OPEC dropping the value of oil. I expect the real estate market in Alberta to slow considerably. The increased fuel savings to the rest of the country along with our declining dollar (which has a positive effect on our commercial exports and GDP) should mean we can expect to see a relatively solid economy here in Ontario, particularly in sectors which export goods and materials to the U.S..
GDP for 2014 was reported at 2.5% which was 0.2% higher than CMHC projections. The 2015 projection is 2.5% growth. Knowing we are tied very closely to the U.S. economy it is worth noting that their GDP is forecast anywhere between 2.8% up to 3.1% growth for 2015 after consistent growth in the U.S. GDP since 2011 – this bodes well for Canada, and more directly, Ontario.
Mortgage rates: Previous CMHC reports had been optimistically suggesting a rate increase in 2015. As you likely already know, the rate war between the banks has continued and the rates have only decreased back to all-time lows. Money has never been cheaper but beware! Low rates can be a powerful tool in building your personal wealth but there is a right and wrong way to do so. Call us anytime, we are happy to discuss.
2- Ontario’s Numbers and Forecasts
Ontario is expected to out-pace the national average for job growth thanks to an improving U.S. economy and a decline in the Canadian dollar. Area’s expected to grow the most over the coming months: auto and machinery manufacturing, tourism and residential building material industries.
The Ontario forecast for multi-units starts for 2015 is + 8.9% and a forecast 1.3% increase for 2016. Though CMHC projections appear to be more of a reflection of what they feel would be “healthy” projections (I suggest this opinion of “healthy” projections is based on looking back at the past year’s (remove “worth of”) quarterly projections and finding a fairly consistent gap) what I think we can derive from these “healthy” projections is that if the numbers come in under or above we can likely position ourselves accordingly so as to minimize our risk or to take advantage of a potential opportunity.
If these new unit starts are going to be affordable units (i.e. – less profit margin for builders/investors) then the new units will be readily absorbed. If the profit margins are not adjusted accordingly and new unit starts out-pace demand, there will be room for a real estate decline.
3- Guelph Data and Forecasts
Multi-unit starts are forecast to drop by 29% here in Guelph in 2015! The data shows that the south-end multi-unit buildings had reached a saturation point by the final quarter of 2014 ( http://docs.trilliumwest.com/market_reports/Q4_2014_data_VFINAL.pdf for Q4 South Guelph multi-unit data) and it would appear that the downtown core will be the primary location for multi-unit starts in 2015/2016 with the eye catching, downtown re-inventing metal works project ( http://themetalworks.ca/ ). These new units may just be what the downtown core needs as the data for downtown Guelph (see above link to trilliumwest Q4 report) shows that there is an ongoing lack of supply of homes and consistent, strong demand for Guelph’s core.
Unemployment rate in Guelph in the final 1/4 of 2014 was at a very strong 4.2% and was reported as remaining at 4.6% at the end of January, with the bulk of new jobs being made up of part time and contract positions. The challenge these part-time and contract positions bring is it can be difficult to secure a mortgage based on contract work of less than 2 consistent/consecutive years. Canada as a whole is sitting at 6.6% un-employment rate. It’s encouraging to see it’s heading in the right direction.
4- Summary and opportunities
Summary: Ontario and Guelph look to be the place to be for 2015! Let’s make the smart choices we need to enjoy a great year and set up for many more years of sustainable growth.
Opportunities:
1 – Income property. Vacancy rates remain to be tight. Personal wealth building and owning rental property go hand in hand. Don’t want to be a landlord? You have options. Call us and let’s explore those options.
2 – Infill lots. Do you have room to sever space off your lot? There is limited land available in Guelph and we have buyers who would love to get an infill lot to build on. Call us to learn more.
3 – Land assembly. This is the term used to describe the purchasing of a number of lots (often with buildings on them) and then re-developing the land accordingly. I find this particular opportunity very exciting. Guelph has a lot of pressure for detached homes and downtown residences so land assembly could be a really good play right now.
4 – Downsizing. With property values at record highs, this is a great time to sell and downsize. If condo living is on the menu, Guelph has never had more exciting opportunities for downtown living than we do today, i.e.; http://themetalworks.ca/ Call to learn more!
Raw data:
Q4 CMHC with housing market outlook
http://www.cmhc-schl.gc.ca/odpub/esub/64591/64591_2014_Q04.pdf
CMHC overvalue indicators
https://www03.cmhc-schl.gc.ca/catalog/productDetail.cfm?cat=70&itm=77&lang=en&fr=1425524886266
Q4 Guelph numbers
http://docs.trilliumwest.com/market_reports/Q4_2014_data_VFINAL.pdf