Will Dunning, the chief economist of the Canadian Association of the Accredited Mortgage Brokers (CAAMP), said during the WinnipegREALTORS® annual forecast breakfast that he foresees some troubles ahead for the national market, but a more rosy outlook for Manitoba.
Over 300 members and guests in attendance heard the speaker, sponsored by Verico One-Link Mortgage & Financial, outline key housing demand factors such as job creation, affordability, investment motives, and address the drop off in housing activity due to the economic downturn.
Dunning said the Canadian job growth trend is reversing, which was most evident in the fourth quarter of 2008. He foresees this trend continuing throughout 2009 and into 2010.
Dunning discussed the loss in stock market wealth, house price declines in a number of major Canadian housing markets and a decline in raw materials prices.
A surprise to many in the audience was that Dunning discounted the notion of low interest rates as being the key determinant for Canadian consumers deciding to buy a home.
“Job creation is the key for the housing market,” he said. “Having a job gives people the ability (and the confidence) to be active in the housing market. And, it’s just not the current trend that matters. Since it takes time for people to get ready to buy a home, what matters is how many jobs have been created over the past three or four years. On that score, based on past job growth, housing demand should remain very strong for some time to come.”
Dunning does not accord affordability the same importance as job creation, but conceded Western Canadian provinces, such as B.C. and Alberta, suffered housing sales activity and price declines due to the high escalation of prices eroding affordability. Saskatchewan is not immune either.
The only province bucking the trend is Manitoba where price increases were less dramatic during the same period. Even in the fourth quarter of 2008, when there were some fairly dramatic downturns in Canada’s major metropolitan markets, most Winnipeg neighbourhoods still showed average house price gains over the same quarter in 2007. Where decreases did occur they were slight, according to a recent Royal LePage Real Estate Services housing price survey.
In 2009, Dunning predicts Manitoba will experience a drop in housing sales of 11 per cent. On the other hand, he feels Manitoba resale prices will rise over five per cent in 2009.
Dunning pointed out the differences between the Canadian housing outlook and the U.S.:
• No housing bubble in Canada.
• The Canadian economy is much stronger.
• Mortgage lenders have been much more prudent.
• Canadian homeowners have more equity.
Stu Duncan, CEO of Destination Winnipeg, gave the audience something to cheer about and appreciate. He said Winnipeg has been on a roll. Despite the national and global economic challenges, the geographic centre of Canada and future world hub for human rights is holding its own on a number of fronts, he added.
To demonstrate the province’s strong performance, Dunning cited the Conference Board of Canada’s Metropolitan Outlook Winter 2009, which said “solid economic growth in recent years has led to steady employment expansion (in Winnipeg), with more than 20,000 jobs created between 2005 and 2008 ... Continued economic advances will attract more newcomers and elevate housing starts over the medium term.”
Winnipeg in 2008 had real GDP growth of 2.7 per cent, which was only topped by Regina and far above Canada’s 0.7 per cent. Local retail sales grew seven per cent, personal disposable income is projected to increase four per cent, there was a record MLS® dollar volume of $2.4 billion, employment increased by 6,500 jobs or 1.7 per cent and the unemployment rate dropped to 4.3 per cent.
The building boom continued in Winnipeg with building permits increasing over the last few years. Last year, residential and non-residential construction was in billion-dollar territory.
Immigration to Manitoba has increased by 137 per cent in the past five years.
Manitoba is predicted to have the second highest GDP growth of all provinces for the second year in a row. Its private capital investment increased by 22 per cent in 2008.
Duncan stressed that Winnipeg’s diversified, stable and resilient economy will help it weather the storm raging across North America. In 2009, the outlook for Winnipeg is for it to be ranked third best among 27 cities for economic growth. All indicators, such as the unemployment rate, employment growth, real GDP and personal disposable income, show positive differences between Winnipeg and what is expected for the rest of Canada.
Don White, the chair of WinnipegREALTORS® commercial division, is optimistic about commercial real estate in Winnipeg. He said the base fundamentals of leasing absorption, vacancy and supply/speculative construction remain favourable. With the exception of large single-asset and portfolio sales in excess of $50 million, Winnipeg’s overall 2008 sales volume of $370 million held relatively steady in comparison to previous years. In his view, this demonstrates Winnipeg should continue to be a stable real estate investment market.
A standout in 2008 was the $156 million in apartment sales, which led all other market types, added White.
In 2009, White foresees an active year for patient well-capitalized buyers with high-quality Class A commercial and residential multi-family assets leading the way in sales volume. Class B and C space will be more challenging due to tighter credit and financial requirements.
“Debt will remain difficult to secure with pension fund and REIT investors sitting on the sidelines until the capital markets stabilize,” said White.
He is bullish that the multi-family or apartment asset class will continue to be at the top of investor’s priorities.
Peter Squire, the public relations director for WinnipegREALTORS® was pleased that his forecast for 2008 held true up to the fourth quarter when all markets across the country were negatively impacted. Nevertheless, MLS® dollar volume did reach $2 billion for the second year in a row and sales were only off three per cent from the 13,000-plus record in 2007.
He said the annual residential-detached average sale price for 2008 was $206,228, a 13 per cent increase over 2007.
This year he foresees a fall-off in MLS® sales of around five per cent, as Winnipeg will not entirely escape the economic downturn.
As the listing supply improved markedly in 2008 — there were twice as many residential-detached listings at the beginning 2009, especially listings over $200,000 — Squire believes this will help keep price increases to a minimum. He said due to the fact the 2008 monthly average home price did drop from peaks set earlier in the year, it is
realistic to believe 2009 will finish with an annual average house price close to the level achieved in 2008. As a result, he said the six-year run of consistently low double-digit house price increases will continue this year.