CMHC Housing Market Outlook Spring 2013

The spring 2013 market outlook from CMHC has been released. It can be found in its entirety here.  Below are snippets from the report.

NEW HOME MARKET

Following a 38 per cent increase in 2012, total housing starts in the Calgary Census Metropolitan Area (CMA) are forecast to decline 8.9 per cent in 2013 before increasing slightly next year. While new single detached construction will see a modest increase over the next two years, the elevated pace of multi-family construction witnessed in 2012 is not expected to continue this year. Heightened supply levels and the threat of rising inventories will warrant a reduction in multi-family starts in 2013. A moderation in the pace of job creation and net migration will also warrant a lower level of starts this year.

MULTI-FAMILY STARTS

Multi-family construction this year is not expected to be as strong as 2012 when starts reached its second highest level since 1981. The increase in the number of units under construction and the prospect of rising inventories will keep starts from returning to last year’s elevated levels. In 2013, multi-family starts are forecast to total 5,500 units, a 20 per cent decline from 2012. Despite
the reduction, multi-family units will continue to be an option for a variety of buyers, such as renters looking for their first home, individuals planning to downsize, or investors seeking an income-producing property. Provided supply levels move lower and inventory levels do not escalate, multi-family starts in 2014 are forecast to increase 5.5 per cent to 5,800 units.

RESALE MARKET

Residential MLS® sales in Calgary are forecast to total 27,000 transactions in 2013, up 1.4 per cent from 26,634 in 2012. The gain in sales will not be as pronounced as in 2012 when sales increased 19 per cent, as some of the primary drivers of housing demand such as employment and migration will experience a lower rate of growth this year. In 2014, MLS® sales are forecast to reach 27,700 units, a 2.6 per cent increase from 2013. The economy in Calgary will continue to create jobs while relatively low mortgage rates and rising incomes will help buyers purchase a home.

Home prices in Calgary have not posted strong gains in the last couple of years, following the declines in average price in 2008 and 2009. As such, a number of homeowners are waiting for prices to increase further before listing their homes. With prices rising moving forward, more homeowners will look to capitalize on equity gains and list their homes. New listings in 2013 are forecast to finish the year slightly above 2012 levels at 42,500 units. For 2014, new listings are forecast to reach 43,000 units, up 1.2 per cent from a year earlier.

With higher sales and moderating listings, the sales-to-active listings ratio increased to an average of 35 per cent in the first three months of 2013, up from 28 per cent one year earlier. Under these conditions, the average MLS® residential price in Calgary is expected to rise this year and next. While the increase in demand has reduced active listings, it has also shortened the time to sell. In addition, an increase in the proportion of sales in the luxury home market will continue to contribute to the rise in the average price. Collectively, these factors will boost the average price 4.0 per cent in 2013 to $429,000, surpassing the record reached in 2007. As the market is expected to remain in balanced territory, the average price is forecast to reach $439,000 in 2014, an increase of 2.3 per cent.

Smokers Ruin Property Value

Smoking in the home may significantly affect property values, and allowing smoking in rental units is costly to landlords.

Pfizer Canada, a leading biopharmaceutical company, recently sponsored a survey of Realtors conducted by Leger Marketing, which concluded that 87 per cent of Ontario real estate agents and brokers surveyed said smoking in the home lowers resale value. Eighty-nine per cent said smoked-in homes are more difficult to sell.

Thirty-one per cent said smoking may lower a property’s value by 20 to 29 per cent, and 21 per cent said the value could drop 30 per cent or more. That’s $120,000 on a $400,000 home!

Fifty-six per cent said most buyers are less likely to buy a home where people have smoked and 27 per cent said most buyers are actually unwilling to buy a home where people have smoked.

The number one reason given was smell; number two was health (second- and third-hand smoke).

Rental landlords know about smoker smell. Unless the new renter of the unit is a smoker too, the new tenant invariably requires the unit to be “detoxified.” This may cost $450 to paint a one- or two-bedroom unit, $100 or more to steam vacuum the carpets and maybe $100 to wipe down and clean all other surfaces (windows, mirrors, balcony doors, closet doors, kitchen cabinets, appliances). You may need to replace or repair countertops, appliances and other surfaces that have been marred by cigarette burns. In a heavily smoked-in unit, you may need to use a stain killer primer or extra paint; replace carpets; clean vents, ducts and ceiling fans; and even clean electrical sockets, where tar and nicotine can accumulate. Promising to deliver a smoke-free unit that still aggravates the new tenant could lead to further costs and a rent abatement award from the Landlord and Tenant Board.

Now add in the possible loss of the insurance deduction for a smoke-free building.

Then there are the possible complaints of neighbours, or the loss of tenants with health concerns for themselves or their children.

The Council of Canadian Fire Marshals and Fire Commissioners report that smokers’ materials and open flame (cigarettes, lighters and matches) remain the No. 1 ignition source in fatal residential fires. Between 1993 and 2002 (most recent figures available) there were 9,414 fires, more than $231 million in losses, 688 injuries and 94 deaths caused by lit smokers’ materials.

Landlords and property managers may be concerned that rejecting smoker tenants would constitute discrimination and possibly increase their vacancy rate. The former is incorrect and statistics for the latter say otherwise.

Smokers are not one of the protected groups of the Human Rights Code and, according to the Non-Smokers’ Rights Association Smoking and Health Action Foundation, it is legal for a landlord anywhere in Canada to include an enforceable no-smoking policy in their lease.

Health Canada’s Annual Canadian Tobacco Use Monitoring Survey (2011) reported that 14 per cent of Canadians smoke daily, while four per cent smoke occasionally. Daily smokers consumed an average of 14.4 cigarettes per day.

Rental landlords, take note: a survey commissioned by the Ontario Tobacco-Free Network (conducted by Ipsos Reid) that researched drifting second-hand smoke in multi-unit dwellings (March 2007), reported that 64 per cent of Ontario respondents would prefer a smoke-free building if such a choice was offered. That means that, as a rental landlord, you can either:

a) rent to the minority 14 per cent market of smokers, try to attract some of the remaining 22 per cent who appear to be indifferent to smokers, and pay the additional smoker-specific cleaning costs when re-renting a unit, or;

b) rent to the 64 per cent of smoker-intolerant tenants; try to attract some of the same smoker-tolerant 22 per cent (total 86 per cent of the market) of tenants and save the average $650 additional smoker-specific cleaning costs.

Chris Seepe is a commercial real estate broker and broker of record at Aztech Realty in Toronto, specializing in income-generating and multi-residential investment properties, retail plazas, science and technology-related specialty uses (laboratories, data centres, call centres) and tenants mandates. (416) 525-1558; Email cseepe@aztechrealty.com: website www.aztechrealty.com.