New heights for low-rise

Just as it takes longer to turn an oil tanker around than it does a small sailing dinghy, it takes longer for builders of multi-hundred-unit condo buildings to respond to newly increased demand than it does low-rise builders.

According to this week’s numbers from Canada Mortgage and Housing Corp., starts of multiple family homes in the Toronto Census Metropolitan Area were down a hefty 22.5% for January from the month before, while low-rise single family developers stepped up to the mark and registered a 13.3% increase.

“The strength in demand for new homes is already showing up in singles. Starts last month already rose to a level not seen in two years,” says Shaun Hildebrand, CMHC senior market analyst for the GTA.

However, Mr. Hildebrand says, there are also signs of recovery in multiples.

“The high-rise numbers were low last month but it’s just a matter of time before they pick up,” says Mr. Hildebrand. “Building permits are on the rise, projects are virtually selling out in a weekend, and there are a lot of big projects in the queue. Preliminary work is under way on many sites around the city, and it won’t be long before we start to see more buildings sprout up.”

The seasonally adjusted annual rate of total housing starts for the Toronto Census Metropolitan Area fell 0.5% from the previous month to reach 20,700 units in January.

Starts are expected to continue their upward trend this year.

“I expect that construction for low-rise homes will remain strong throughout 2010,” says Mr. Hildebrand. “Sales levels for single detached homes will continue to trend upwards for the first half of this year as buyers take advantage of lower interest rates and look to close on homes before the HST comes into effect [July 1].”

Once onstream, these homes are maintaining price levels set at the end of last year. Statistics Canada reported this week that new-home prices edged up 0.7% in December 2009 from November, in Toronto and Oshawa. On a year-over-year basis, prices for December rose 1.1% compared with the same month in 2008. Nationally, new home prices are still down 0.9% year over year.

Single detached home starts are also leading the way in the national picture.

“After trending down for about six years, single-family housing starts are back in command of Canadian residential constructionactivity,”notesRobert Kavcic at BMO Capital Markets Economics. “While multis have rebounded 42% since the April low, singles have doubled, vaulting them back above their more-volatile counterpart by a margin of 88,900 to 76,300 in January. Note that, while singles were already trending down pre-recession, multis (i.e., new condos) were ramping up — this could suggest that the supply situation [nationally] is a bit more favourable for single-family homes.”

Also this week, the Canadian Real Estate Association issued a revised forecast for home resales. A little obviously, CREA noted that it did not expect a repeat of the 2009 downturn in sales activity.

“With Canadian economic growth rebounding from the recession, the unusually severe decline in sales activity in early 2009 is not expected to recur in 2010,” notes the report. “Annual activity in 2010 is forecast to be well above the previous year’s level, as a result.”

CREA is now forecasting that resales across the country will hit 527,300 units in 2010. This would equate to a 13.3% rise from 2009 — a new annual record. Sales in Ontario and British Columbia are expected to lead the way.

However, CREA sees most of the rise in sales in these provinces coming during the first half of the year.

“Over the second half of the year, national activity is expected to trend downward as the last of pent-up demand is exhausted, interest rates begin rising, and the HST comes into effect in Ontario and British Columbia.”

The report forecasts national home sales activity to decline 7.1% to 490,100 units in 2011. CREA expects the national average home price will rise 5.4% to a record $337,500 in 2010, easing back 1.5% in 2011.

(prepared by Helen Morris/National Post)