Price is RIGHT
Lori Edey is typical of homebuyers who have surprised the residential construction industry this year.
She’s a young renter who has made the move to homeownership, despite the economic downturn.
It all boils down to price and improved affordability.
“I really didn’t think I would be able to afford anything on my own,” says the 29-year-old legal assistant.
“But my parents saw the article in the paper about Prestwick Place and they checked it out. The price made it work and with the interest rates so low, it was possible.”
Such factors have buoyed sales in the multi-family housing market this year, says Richard Cho, senior market analyst for Canada Mortgage and Housing Corp.
He summarized this year at the recent Housing Outlook Conference. “We are seeing strong demand at the entry level,” says Cho.
The resale market shows that so far this year, more than 70 per cent of MLS condo sales have been units priced below $300,000. “Sales of condos $200,000 or less have increased almost four times over last year,” says Cho. “That’s a pretty good option for firsttime buyers and we’re seeing strong demand from renters.”
Edey’s new complex, Prestwick Place by Cardel Lifestyles, has one-bedroom units starting below $260,000.
The combination of historically-low mortgage rates and decreased carrying costs has prompted people to jump in.
Due to the cost difference of condos versus single-family homes, the multi-family sector is the first place people turn, says Cho.
“There’s a strong improvement in affordability — almost $500 a month for condos (this year compared to last),” he says, “That’s like getting a big wage increase.”
With a typical 10-per-cent down payment and an average five-year fixed mortgage rate, the average monthly payment at the end of 2007 and beginning of 2008 for a condo was just over $2,000 per month.
It’s now closer to $1,500, says CMHC. By comparison, rents for the same period were $962 less per month than mortgage payments in late 2007.
Today, the difference is only $426 — and buyers are building equity at the same time.
Mortgage rates fell over the course of 2009, but are expected to remain relatively stable for the rest of the year, says Cho.
The average fiveyear rate is 5.55 per cent, compared to an average of 7.06 per cent last year. One-year rates are averaging just 4.03 per cent.
For Edey, the fact that her condominium building won’t be completed until 2011 is another plus. It gives her time to save so she will be ready financially when the time comes to make the move, she says.
All the current advantages of owning have attracted people to the market, surprising even builders.
“Our forecast for this year was a modest 79 (sales),” says Tim Logel, president of Cardel Lifestyles. The company is building Prestwick Place, where Edey bought, as well as other multifamily developments.
“We will end 2009 with 145 sales,” says Logel. “The increase is directly a result of pent-up demand, the low interest rates and attractive pricing.”
Other multi-family developers found the same thing. “We actually had a very good year,” says Wendy Jabusch, general manager of Hawthorne Homes.
“We set our 2009 business plan at 159 sales and achieved 180 year-to-date. Over the last year, our buyers took the time to research and make a careful selection for their homes, but ultimately they recognized the value and had the confidence to make a purchase.”
Statesman Group is another company which is building in Calgary, along with other locations,
“In our market, we have found that people know value when they see it,” says president Garth Mann, “They want to be treated with quality product, a great location, amenities that are already constructed and the opportunities of the value increasing.”
His company has already moved in nearly 100 people into Riverside Quays, Statesman’s latest steel-andconcrete complex in Inglewood.
Even with the unexpected strengths, the condo market is still in transition, says Cho.
“After starting 7,051 multi-family units in 2008 — the highest level of production since 1981 — multi-family construction has reported sharp declines thus far into the year,” he says.
By the end of September, just 987 units were started, the lowest level since 1996.
Cho is calling for 1,350 multifamily construction starts by the end of the year, including row houses, apartments and semidetached homes — down 81 per cent.
“Heightened supply levels continue to discourage additional multi-family production,” he says. “Much of the decline in starts has been concentrated in the apartment segment, where inventories have been rising in 2009.”
That will continue, with more than 5,000 apartment units still in the construction phase.
“There are still several projects around the Beltline area that have been delayed and halted,” says Cho.
“Many of these need to begin moving before builders significantly start any new projects. These represent a future supply.”
Trico Homes, which recently started its 212-unit Milano project in the city’s northwest, says outlying areas continue to have success.
“The multi-family projects that remain oversupplied are mostly inner-city projects, which provided us with enough comfort level to proceed with Milano,” says Paul Betts, who looks after marketing for Trico. “I would still expect some delays in bringing on new inner-city projects and developers await more significant signs of a return to market readiness for product.”
The fact that some projects in the inner city have been sidelined is a good thing, says Randy Klapstein, president of Pointe of View, which builds both in the inner city and outlying areas.
He has just started to re-market and build the stalled Midtown highrise project, which was halted when its former developer went into receivership.
“The good news is that not all the development that was planned for the downtown core was built,” says Klapstein. “I think that the ones that did get build now have inventory moving down.” That’s good news, he says. “I think the downtown can handle two or three developments a year — not the 20 or so that were planned,” he says. “The downtown offers a very viable, great lifestyle and people are definitely excited about it.“
He’s already experiencing strong interest in Midtown and has about 90 sales to date despite just opening the sales centre.
Adds Calvin Buss, who specializes in marketing some inner-city projects under Buss Marketing: “The inner city has an inventory issue as big highrise buildings are still in the delivery stage.
“Large projects such as Keynote are still moving ahead with delivery next year and ones sidelined — such as Midtown and possibly others — have and are returning to the market.”
Several inner-city developers have come up with price reductions and incentives to attract people to the different projects that are underway and they have met with some success.
Overall, says Cho, “we are starting to see some signs of things getting better.”
First-time buyer Lori Edey purchased a unit in Prestwick Villas.
Downtown can support one or two multi-level construction projects.