Return to stability good news for industry.
July 12, 2004 - ONCE A rocky industry of boom and bust, the housing market is poised to become a stable sector once more.
Local economists and industry stakeholders predict the strong activity that Ottawa has seen for the past few years will continue, but at a more comfortable rate.
"By the end of this year, it will be a balanced market territory," says Christian Douchant, senior market analyst for Ottawa at the Canada Mortgage and Housing Corporation. "My sense right now is that we're seeing more new home sales than before and we think the condo market will be strong because of demographics."
John Herbert, executive director of the Ottawa-Carleton Home Builders' Association, sees the industry remaining stable.
"All economists are forecasting relatively low interest rates, which is the main driver. What will happen over the next few years is we will meet the pent-up demand and then, after this year, the market that will remain will meet demographic needs," says Mr. Herbert. "It will be an adjustment down to healthy numbers."
But Market Research Corporation general manager Barry Nabatian does not paint as rosy a picture for the near future, saying interest rates are the strongest factor driving the market.
"Late this year and for all of 2005, the housing market will be much less strong," says Mr. Nabatian.
Immense growth in the public sector over the past three years has kept the housing market booming, Mr. Nabatian says. Population growth has been another factor, as the Ottawa region added 13,000 people last year. "Right there, demand for an additional 4,000 to 5,000 units of housing was needed," says Mr. Nabatian.
However, a slowdown in employment in the federal government and no other areas of the economy doing significant hiring have tempered Ottawa's population growth, Mr. Nabatian says.
"To me, that is the most significant factor that will affect the housing market this year and next year. There are three factors (affecting the housing market). Saturation is one, low employment and low population growth is the second factor and expected increase in mortgage rates will be the third factor. There's going to be a slight decline or stability in housing prices."
Ottawa's housing market continues to be a seller's market, with sales of almost 7,500 homes being sold in the first six months of the year, according to the Ottawa Real Estate Board. But what has been changing is the number of listings available, making market conditions less intense, with consumers avoiding bidding wars according to Mr. Douchant.
"(We're) expecting to see a pullback in new home construction because of the number of resale listings," says Mr. Douchant. "The job market has been lacklustre (and with) higher mortgage rates down the road, demand will not be as buoyant in 2005 as it has been in 2004."
Minto, the city's largest-volume homebuilder, appears to be defying the decline in new home purchases. "We've had the strongest six months ever," says Robert Greenberg, executive vice-president of Minto Developments Inc. "(We sold) 800 units from January to June."
Mr. Greenberg does not expect the second half of this year to be as strong as the first, but still thinks the market will remain solid.
So far this year, $451.2 million worth of residential building permits have been issued in Ottawa, according to Statistics Canada, up 5.7 per cent from the first five months of 2003. Multiple unit permits are up 21.5 per cent, while costlier single-family home permits are down five per cent on the year to date.
New housing starts for June are down 13 per cent from the same month last year, says Mr. Douchant, but for the first six months of this year, 3,144 housing starts have been recorded, compared to 2,918 during the same period in 2003.
With interest rates expected to rise once, maybe twice, before the end of this year, Mr. Nabatian says there could be a surge in home buying because people currently sitting on the fence will jump in, figuring next year will be more expensive.
Concern about rising housing prices and the issue of affordability is a critical factor, Mr. Herbert says. Since 1997, Ottawa home prices have increased 43 per cent, more than any city in Canada, Mr. Herbert says.
Royal LePage reported last week that the average price for a single unit dwelling in Ottawa rose 5.6 per cent in the second quarter from the same period in 2003, while the condominium market rose 8.5 per cent. The average selling price for a detached bungalow is $256,000, while the price for a standard two-storey home is $254,000.
Mr. Herbert thinks the traditional flow of homebuyers who purchase a townhome before moving on to a single home will now start at the condominium level and then go to a townhome before a single dwelling, changing the dynamics of the market.
Demand for new condominiums, however, has slowed, Mr. Nabatian says, adding many people bought them as an investment and the number available for rent is now quite high.
Mr. Douchant predicts the supply will even itself out with demand coming from people entering retirement.
Mr. Herbert is pleased the industry is stabilizing, much as it did from 1945 to 1980, because it gives homebuilders the opportunity to keep workers continuously employed and trained. In the up-and-down swings from 1980 to 2000, Mr. Herbert says the educational system for learning trades fell apart, leaving the industry scrambling when the market began to climb in 2000.
"Because of the projected stability, we'll be able to produce a sustained workforce educated in the right sectors," says Mr. Herbert. "The last four years have been very difficult for us because we didn't have an educated workforce to deal with (the boom)."
According to Mr. Herbert, 7,800 units were sold in 2002, the high point of the housing boom. Last year, approximately 6,400 units were sold, amounting to an 18-per-cent decline. So far in 2004, from January to May, 2,342 units have been sold.
Local Housing Starts
© Copyright 2004 The Ottawa Business Journal