The Market Keeps Growing in Quebec, FORECASTER - CANADA New construction kept up a good pace in the

The Market Keeps Growing in Quebec, FORECASTER - CANADA New construction kept up a good pace in the
The Market Keeps Growing in Quebec, FORECASTER - CANADA New construction kept up a good pace in the
The Market Keeps Growing in Quebec, FORECASTER - CANADA New construction kept up a good pace in the
The Market Keeps Growing in Quebec, FORECASTER - CANADA New construction kept up a good pace in the
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Transcript of The Market Keeps Growing in Quebec, FORECASTER - CANADA New construction kept up a good pace in the

  • SPOTLIGHT ON HOUSING

    François Dupuis, Vice-President and Chief Economist • Mathieu D’Anjou, Deputy Chief Economist • Hélène Bégin, Senior Economist

    Desjardins, Economic Studies: 418-835-2450 or 1 866-835-8444, ext. 5562450 • desjardins.economics@desjardins.com • desjardins.com/economics

    NOTE TO READERS: The letters k, M and B are used in texts and tables to refer to thousands, millions and billions respectively. IMPORTANT: This document is based on public information and may under no circumstances be used or construed as a commitment by Desjardins Group. While the information provided has been determined on the basis of data obtained from sources that are deemed to be reliable, Desjardins Group in no way warrants that the information is accurate or complete. The document is provided solely for information purposes and does not constitute an offer or solicitation for purchase or sale. Desjardins Group takes no responsibility for the consequences of any decision whatsoever made on the basis of the data contained herein and does not hereby undertake to provide any advice, notably in the area of investment services. The data on prices or margins are provided for information purposes and may be modified at any time, based on such factors as market conditions. The past performances and projections expressed herein are no guarantee of future performance. The opinions and forecasts contained herein are, unless otherwise indicated, those of the document’s authors and do not represent the opinions of any other person or the official position of Desjardins Group. Copyright © 2019, Desjardins Group. All rights reserved.

    Quebec and Ontario: A Tale of Two Dynamics Quebec’s resale market maintained strong growth at the start of the year, while Ontario’s remained stable (graphs 1 and 2). A series of measures applied by the Ontario government in 2017, including the 15% tax on foreign buyers in the Greater Toronto Area, delivered the first blow to the  market. Then, stricter mortgage rules introduced by the federal government, along with rising interest rates since mid-2017, slowed down residential sales even further. The high property prices in Ontario have made the market more sensitive than others in the country. The adjustment period could last a few more months in this province.

    The incentive announced in the last federal budget for first-time  home buyers is expected to have minimal impact in Ontario due to the high cost of homes. Once this measure is in place, borrowers will be able to benefit from government funding of  5% for an existing home and 10% for a new home, if specific  conditions are met. The amount of the mortgage cannot exceed four times the household income to qualify for the assistance program. Furthermore, the maximum mortgage will be capped at $480,000, and maximum household income at $120,000 a year to be eligible. Given that the average price of a home in Ontario is almost $600,000, a smaller share of households would qualify. In short, don’t count on this measure to jump start the resale market. This incentive could have a marginal impact on Quebec’s

    The Market Keeps Growing in Quebec, Remains Stable in Ontario

    ECONOMIC STUDIES | MAY 16, 2019

    After an already exceptional 2018, the property resale market started 2019 with a bang in Quebec. Sales and prices rose in almost all of the areas of the province in the first quarter. New construction has not let up due to the ongoing boom in the rental market. In  Ontario, the adjustment period that began two years ago has given way to stable sales and prices. The Toronto market is no longer as overvalued owing to the price adjustment, but Ottawa and Montreal are still overheated.

    #1 BEST OVERALL FORECASTER - CANADA

    Annual variation in %

    -12 -8 -4 0 4 8

    12 16 20 24

    2015 2016 2017 2018 2019

    Ontario Quebec

    4-month moving averages

    Sources: Canadian Real Estate Association and Desjardins, Economic Studies

    GRAPH 2 Existing property prices: Relatively modest hike in Quebec compared with Ontario

    Average prices

    GRAPH 1 Existing property sales are strong in Quebec, sluggish in Ontario

    Sources: Canadian Real Estate Association and Desjardins, Economic Studies

    In thousands

    60

    70

    80

    90

    100

    170

    190

    210

    230

    250

    270

    2015 2016 2017 2018 2019

    Ontario (left) Quebec (right)

    In thousands

    Sales

  • ECONOMIC STUDIES

    2MAY 16, 2019 | SPOTLIGHT ON HOUSING

    real estate market when it comes into effect in the fall. All of the details on how the program will work should be known by then.

    Montreal and Ottawa Overheating The Toronto market is no longer as overvalued owing to the price adjustment, but Ottawa and Montreal are now overheating. This situation occurs when demand for housing is much too high in relation to the pool of properties on the market, thereby leading to a rapid increase in prices. The Canada Mortgage and Housing Corporation (CMHC) defines this state as a sales-to-new listings  ratio of more than 70%.

    Incidents of overheating are multiplying, and foreign investors are more active in some of Montreal’s neighbourhoods. Some people are worried about the rapid rise in prices in Montreal. Still, it has been very modest compared with the one that Toronto experienced before the correction in 2017 (graph 3). The average price is nearing $400,000 in the Greater Montreal Area, and the annual hike reached 6.5% during the first four months of 2019.  According to the CMHC, the level of overvaluation remains weak in Montreal, while Toronto’s recently became moderate. Montreal’s market is far from being as problematic as Toronto’s was two years ago.

    Quebec’s Rental Market Dominates New construction kept up a good pace in the first quarter,  stimulated by the strong rental market. The number of single-family, semi-detached and row house starts was down; condominium builds were also lower for the second year in a row.

    New construction of rental units has been particularly active over the last few years, especially in Montreal and Quebec Census Metropolitan Areas (CMA) (graphs 4 and 5). The strong growth is affecting the Greater Montreal Area, with more than 3,000 apartments built in the first quarter of 2019. More  rental units are being built than condominiums. Construction is intense on the island, especially in the Ville-Marie district. New projects in Quebec CMA were slower to get off the ground

    at the beginning of this year compared with last year, but the number of apartments already underway remains extremely high (table 1). More than 1,000 rental apartments are being built in Gatineau, that is, more than during the same period last year.

    Annual variation in %

    -15 -10 -5 0 5

    10 15 20 25 30

    2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

    Montreal Toronto

    4-month moving averages

    Sources: Canadian Real Estate Association, Québec Federation of Real Estate Boards through the Centris® system, and Desjardins, Economic Studies

    GRAPH 3 Existing property prices: Montreal far from the rollercoaster prices of Toronto

    Average prices

    GRAPH 4 Montreal CMA: Rental apartment construction is booming

    In thousands of units

    0

    2

    4

    6

    8

    10

    12

    2001 2003 2005 2007 2009 2011 2013 2015 2017

    CMA: Census Metropolitan Area Sources: Canada Mortgage and Housing Corporation and Desjardins, Economic Studies

    Conventional apartment starts

    GRAPH 5 Quebec CMA: Rental apartment construction going strong

    In thousands of units

    0

    1

    2

    3

    4

    5

    2001 2003 2005 2007 2009 2011 2013 2015 2017

    CMA: Census Metropolitan Area Sources: Canada Mortgage and Housing Corporation and Desjardins, Economic Studies

    Conventional apartment starts

    TABLE 1 Rental apartment construction strong in some Quebec markets

    CMA: Census Metropolitan Area Sources: Canada Mortgage and Housing Corporation and Desjardins, Economic Studies

    RENTAL APARTMENTS UNDER CONSTRUCTION

    NUMBER NUMBER VARIATION (%)

    March 2018 March 2019

    Montreal CMA 11,010 15,395 39.8

    Island of Montreal 4,639 5,967 28.6

    Ville-Marie Borough 1,910 3,002 57.2

    Quebec CMA 3,964 4,296 8.4

    Gatineau CMA 826 1,153 39.6

  • 3MAY 16, 2019 | SPOTLIGHT ON HOUSING

    ECONOMIC STUDIES

    Despite the rapid rise in supply, the vacancy rate in Montreal and Quebec CMA’s (graphs 6 and 7) remains well below the threshold of overbuilding set by the CMHC. Even if the rental market is booming and demand is firming up, it is important to  maintain some balance by pacing the number of new projects, which seems to have been the case until now.

    The hike in the number of renters helped to quickly absorb the new apartments on the market. On the one hand, buying a property is proving to be far less affordable than it was about 10 years ago because prices and interest rates have been rising since mid-2017. As a result, many young households are turning to the rental market. On the other hand, the number of people age 65 and older is rising at breakneck speed as the population ages. Demand from this age group is up, and the construction industry is adjusting to this reality.

    The broader choice in rental a