Residential real estate activity should moderate further in 2009 alongside a general weakening in domestic economic conditions, says a research report released today by Scotia Economics.
The Real Estate Trends, authored by economist Adrienne Warren, said Canada can expect a 15-20 per cent decline in the volume of resales this year with a further 10 per cent drop in average prices.
“Centres with the largest supply-demand imbalance, including Vancouver, Sudbury and Calgary, have relatively greater downside risk.”
The report said that while home sales and construction in Canada seem sure to turn down further this year, the outlook for renovations is somewhat mixed.
“The industry has been growing rapidly in recent years, with inflation-adjusted outlays rising an average of 8.5 per cent annually this decade, three times faster than overall GDP growth,” wrote Warren. “Spending slowed progressively through 2008, but outlays are still estimated to have increased about four per cent. Expenditures on home improvements and alterations (but excluding repairs) totalled close to $40 billion last year, placing the renovation industry comparable in size to new construction.”
She said Ottawa’s recently announced renovation tax credit for households has the potential to provide a significant boost to the industry in 2009. But the initiative’s overall effectiveness in filling the construction gap may be limited. The main factors behind the boom in renovations in recent years – record existing home sales, rising home prices and equity, record homeownership rates, high new home prices, an aged housing stock, and strong job and income growth – are no longer supportive.
“By and large, we expect renovation spending in 2009 to focus on more practical projects, including efficient upgrades and preparations for selling over purely aesthetic improvements that prove more popular when home prices are rising,” said Warren.
In the commercial real estate sector, the report said office market activity in the country is expected to cool this year after several years of strong growth.
“Demand for office space is weakening alongside slowing office-based employment . . . tighter credit availability and sharply lower institutional investor activity,” said Warren. “Meanwhile, substantial new supply will come on the market in 2009-2011, primarily in Toronto and Calgary, as a result of major new office tower developments currently underway.”
Vacancy rates are expected to climb in all major centres this year, putting downward pressure on rents.
“Still, the sector appears better positioned than during the early-1990s downturn given a high pre-lease ratio and low starting vacancy rate,” added Warren.
She said the retail markets will be pressured by weak consumer spending as well as significant new supply. An estimated 15 million square feet of new retail space is coming on the market in 2009, the most in a decade.
“Prime downtown locations will likely outperform more saturated suburban markets.”
Source: Calgary Herald