Real estate prices still rising
Condo market may be saturated, CMHC says
Jessica and Mike Stringer love their home in Kenmount Terrace in St. John’s, but it’s no longer the right size for their family. They bought the brand new home — a minute or so from the Kelsey Drive shopping district — about four years ago for $209,000, and Mike Stringer then spent more than a year renovating the unfinished basement, turning it into an apartment and adding a rec room.
But now with two daughters under three, the Stringers need something bigger. They’re hoping to keep the Kenmount Terrace home and rent out both floors and move to another house, possibly one that also has an apartment.
“All the little clutter and stuff, I have nowhere to put it,” Jessica Stringer said.
An older home caught their eye just as they were about to take a vacation. They weren’t quite ready, but it seemed to have all the right features so a relative checked out the house — two-storeys in Cowan Heights with an above-ground apartment and garage. But it was snapped up at an open house by a buyer with cheque in hand.
“It seemed to us like it was a good deal, but we weren’t really sure,” Mike Stringer says of the roughly $430,000 home. “But obviously in hindsight it must have been a good deal.” The real estate market locally is pretty balanced and will continue to thrive, Re/Max realtor Kevin Martin tells them during his first sit-down meeting with his new clients one evening.
“The market is still going and there’s lots of room to make money in this market,” Martin tells the couple.
“Even though we are in a balanced market, our prices are still going (up). … You’re not going to lose money in this market.”
The couple has no extravagant demands. They are in a good position because they don’t have to sell their home and are prepared to look for awhile.
And the house they bought five years ago has increased in value by between one and three-quarters to twice as much.
But the hunt might still be challenging, Martin cautions.
“There’s not a lot of choice. Nice homes, as soon as they come on the market, whether they be old or relatively new, if they are well kept, they are gone within days.”
••• The news going into 2013 is there’s recognition the condo market has been saturated and there’ll be more apartment buildings built, though not to the scale of high-rises in Halifax, said Chris Janes, senior analyst with the Canadian Mortgage and Housing Corp. (CMHC).
The prime target for these new apartment buildings are people in the 55-plus category. They have a home paid off, want to downsize, but don’t want to take a mortgage on to move to the $400,000-plus market for many condos.
They like the maintenance-free lifestyle, but after selling their family home, they still have to come up with $100,000-$150,000 to buy a condo after the sale of their home, plus hundreds a month in condo fees.
The trend — because of the disconnect between house and condo prices for many people — is for them to sell their houses and rent, while banking or investing their sale money or perhaps buying a secondary vacation home.
“That’s the latest and greatest this year and going foward,” Janes said.
“We have been lagging in that trend. But it’s absolutely what has been driving that rental market.”
Looking at the St. John’s metro area, housing starts were up 12 per cent over the previous year, Janes said.
In 2012, there were 2,153 housing starts — 1,292 single units and 861 multiple units. The stats for single units were flat, while multiples were up 39 per cent, reflecting the increase in condo starts and basement apartments. Multiple units include homes with apartments.
First-time buyers tended to opt for homes with basement apartments, Janes noted.
In 2012, the average price for new single detached homes in the census metropolitan area was $387,439, up significantly from $351,305 in 2011.
Multiple listing service (MLS) sales — which includes homes of all ages — were 3,871 units, up six per cent over the 3,647 that sold in 2011. Average price in 2012 was $285,529, versus $268,608 in 2011.
The vacancy rate in 2012 was 2.8 per cent for a two bedroom with an average rent of $798, versus $771 in 2011, when the vacancy rate was 1.3 per cent.
“We had a little bit of new construction,” Janes said of the bump in vacancy rate. As well, it reflects a shift from renters to first-time home ownership.
For 2013, the forecast predicts 1,950 new housing starts in the census metropolitan area. — 1,400 single detached homes and 550 multiple units.
Profits have returned to pre-housing boom levels due to increased land prices, labour and materials costs, he said. For awhile, homebuilders were clearing $50,000 to $100,000 in profit on a new home.
“It’s very difficult for developers to build under $300,000 for a basic bungalow,” he said.
It’s expected 3,600 homes will be sold through the MLS with an average price of $297,500.
The vacancy rate is predicted to be 3.5 per cent, reflecting apartment construction, but it’s likely the vacancy rate will stay under four per cent for the foreseeable future.
Rent in 2013 for a two-bedroom apartment is likely to be $825 per month. For rents to slide back, the vacancy rate would have to exceed five per cent, Janes said.
First-time buyers, because of high new house prices, will continue to find it difficult to break into new home ownership and will gravitate to existing homes.
“Absolutely, anything under $300,000 goes pretty quick,” Janes noted.
As for the province as a whole, there were 4,650 MLS sales in 2012, up from 4,480 in 2011. The average price was $268,776, up from $251,581 in 2011, or a 6.8 per cent increase.
There was a record number of housing starts across the province in 2012 — 3,885, compared to 3,488 in 2011. The forecast for 2013 suggests 3,400 housing starts, indicating a slight pullback.
In 2012, the province saw notable increases in the construction of seniors apartments across the province, Janes pointed out.
In 2012, there were 2,523 single detached homes built across the province, with 2,500 forecast for 2013. The year 2012 saw a record 1,362 multiple units built, up 55 per cent over 2011. Some 900 multiple units are forecast to be built in 2013.
Strong employment and economic growth — fuelled by megaprojects — are expected to continue influencing the housing market this year.
The only negotiable impact could be the provincial government’s predicted deficit.
But there’s good news on the interest rate front — there is not expected to be an increase in mortgage interest rates for the foreseeable future — beyond 2014.