British Columbia - expect more balance in 2008
As forecast, affordability conditions deteriorated across every home segment in
the final quarter of 2007 and we still believe the market is poised for some affordability
relief. The two-storey segment continues to carry the brunt of the deterioration
as the hot Vancouver market remains in deeply stressed territory. The
province-wide sales-to-new listings ratio is slowing, indicating a gradual re-balancing
of markets. Mortgage rates should be a positive for markets this year as
we still expect the five-year fixed rate to drift about 75 basis points lower from
current levels. Although house price growth picked up at the end of last year,
softening economic fundamentals are expected to temper demand for existing
homes and slow price gains in 2008 from the 12% pace in 2007 to the 7% range.
Alberta’s housing markets on watch
Affordability appears to have peaked about midway through last year. Conditions
are now already on an improving track with more relief in the pipelines over
the coming quarters. Healthy income gains (running at 5% year-over-year in the
final quarter of 2007) combined with a decline in house prices led to overall affordability
improvements for new homeowners trying to tap into the overvalued Alberta
market. This marks the first time in over three years that the market has
witnessed a broad-based affordability improvement across all home segments.
This also marks the start of what we fear could become a trend. All of the key
housing measures are in contraction mode right now including house prices,
housing starts, and resale activity. The sales-to-new listings ratio has swung
dramatically from deep seller's territory into a more balanced state and has remained
in steady balance for the last six months. Further improvements are
expected as the market continues unwinding and mortgage rate relief materializes.
Saskatchewan is the new Alberta... but for how long?
Saskatchewan now holds the top spot on growth across all key housing indicators
including housing starts, house prices, residential building permits, and resale
activity. Supply constraints in the existing home market have meant overflowing
demand into the new home market. Housing starts soared 62% last year
and we expect Saskatchewan to be the only province to see an increase in housing
starts in 2008. New house prices continue to escalate with year-over-year
growth running at 45% in Saskatoon and 26% in Regina. Supply shortages
continue to push up prices and overall inflationary pressures in the province.
The latest month’s data is still signaling a sales-to-new listings ratio in deep
seller's market. The major erosion of affordability that has occurred over the last
year should gradually take a bite out of current momentum over the coming year.
Manitoba - more upside potential ahead
Resale markets across the province continue to heat up. Excess demand is driving
12%-15% year-over-year house price gains across all home segments. Strong
price gains led to another quarterly deterioration in housing affordability at the
end of last year. Manitoba has not seen anything close to the magnitude of the
deterioration witnessed in Saskatchewan and Alberta. Overall affordability conditions
are still within reason as household income continues to grow at a healthy
5% year-over-year pace - the third fastest in the country. We expect an improving
trend to take hold over the coming quarters as price gains weigh on existing
demand and sales-to-new listings ratios let-up.