Ontario’s economic Performance and Rental Market Trends and Forecast:

Within Canada, Ontario’s economic performance has been mixed, with construction of commercial properties overflowing and the housing market maintaining its upward path despite some overvalued markets (GTA).[1] Ontario produces 37% of Canada’s GDP and 38% of Canada’s merchandise exports. [2]

Households have shown increased caution with respect to spending, due to the weakening retail sales gains and a reduction to the pace of debt accumulation. TD’s forecast states that Ontario’s economy has grown by 1.9% in 2012, which is just below the national average.[3] In 2013, the housing market will begin its gradual correction, with prices in the GTA market set to lose more than the national average.[4] Unfortunately, Ontario has the highest deficit among provinces at 2.2% GDP.[5] Given the low interest rate environment, home prices are likely to unwind 10% over valuation over the next two to three years as housing demand softens and buyer’s market conditions re-emerge.

TD attributes the source of the regional growth gaps to the housing market.[6] The varying residential market condition will perpetuate growth differentials given that housing is a large driver of consumer spending. The extensive fiscal restraint initiatives the federal and provincial governments have launched in combination with the upward momentum of an overheated housing market has resulted in housing markets beginning to fade in major urban markets, such as Vancouver and Toronto.[7] All provinces are likely to bear some impact of the stricter federal mortgage lending rules and a gradual increase of interest rates, however urban markets in Toronto and Montreal may foresee larger than average declines.

 Market Trends: Residential (Ontario)

During the first half of 2012, the household debt to income ratio was at an all time high level of 152%.[8] In order to halt this rapid climb, households are going to have to lower their borrowing amounts and further increase their savings. The Ontario housing demand peaked early this year with modest job growth and less migratory inflows prompting a downward revision in the housing activity.[9]

CMHC states in its Ontario Regional Highlights report that Ontario resale prices grew at an above inflationary rate in early 2012.[10] A balance market and less home sales at higher prices suggest the impediment of Ontario price growth. In 2012, housing starts were at 207,200, forecasted in 2013 to be slightly less at 193,100. Resale homes in Ontario averaged at 466,660 with a forecast for 2013 at 469,600.[11] On a quarterly basis, growth in the average MLS list price is expected to be slow. Single detached starts have stabilized in recent months and will reach 259,000 units by 2013.[12] The MLS average list price for Ontario is forecasted to be $386,900 in 2012 and $389,200 in 2013. [13]

Vacancy Rates:
    CMHC reports in regards to Canada’s vacancy rates that the continuation of modest purpose built rental construction and rental demand remains strong due to high immigration.[14] This will be offset in the future by an expanding rental condominium market. The stock of unoccupied new housing units has been stable over the past year, which indicates continued demand for new homes. In April 2012, Ontario vacancy rates dropped to 2.3% from. 2.5% the previous year.[15]

 Belleville Multi Unit and Rental Information:

            With Belleville being located halfway between Toronto and Kingston, it has become an established centre with significant developments. It is a city able to boast strong family incomes of more than $61,000.[16] Belleville’s history and early growth has built a moderate sized apartment market with just over 5,706 units, a high concentration of 11.68 apartments per 100 people.[17] Although the majority of these units are found in buildings 20 units and smaller, there are 20 buildings that are comprised of 50 units and more.

            The recession of 2008 impacted Belleville with a rise in unemployment to 7.2%.[18] This can be illustrated in the apartment market which has seen vacancy rates rise from 3.7% in 2008 to 5.6% in 2009 before dropping to 4.4% in 2010. The softest part of the market surrounds two bedroom units where vacancies remain at 4.7%.[19] Three bedroom apartments are faring much better at 1.2%. [20]

            This soft market has put a stop to rent increases, which fell by 0.26% in 2010 after years of growth in the 2-4% range. The only part of the market which saw rents increase were bachelor apartment units, where rent increased significantly from $549 in 2011 to $590 in 2012. [21]

 Apartments/Rentals/Multiunit Trends:

Another important trend to consider is that the slowing growth in condominium resale prices combined with a rising unoccupied condo rental stock will also dampen buying activity in some market segments. Modest job growth and change in mortgage insurance rules may dampen sales.

There are currently over 4,117 apartments in Belleville with approximately 455 apartment buildings. With an apartment rate of 8.4 apartments per 100 people, it is one of the highest rates in the province.[22] Belleville’s apartment composite is made up of 398 buildings or 87% that house 20 units or less but the city has 20 buildings over 50 units in size.[23] Investors have a variety of choices when it comes to the smaller sized buildings but with such a high proportional supply of apartments versus population, currently we are in a renter’s market.

For investors, Belleville may be oversupplied but this means that there is a lot of choice with lower prices. It also means a competitive rental market. Experienced investors and property managers may find opportunities to aggressively manage selected properties and generate revenue. Multi family is the currently the hottest commercial investment segment in Eastern Ontario with occupancy more than 95% and growing.[24] Demand is growing for new products with securities, garden suites with proximity to public transportation, shopping and recreation.

Below you will find a chart from CMHC reports indicating market statistics for Belleville from both 2011 and 2012. The data has been split up into various categories by different bedroom type. [25]

[26]

 

Bachelor

1 Bedroom

2 Bedroom

3+ Bedroom

Total

April ‘11

April
‘12

April ‘11

April
‘12

April ‘11

April
‘12

April ‘11

April
‘12

April ‘11

April
‘12

Private Apart. VR (%) by bedroom type

 

**

 

**

4.1

3.7

 

3.3

 

3.4

 

0.5

 

4.4

 

3.5

 

3.6

 

Private Apart. Rents ($)

 

594

 

618

737

751

 

831

 

850

 

946

 

970

 

802

 

820

 

Private Apart. Units in the Universe

 

114

 

115

1694

1727

 

3640

 

3689

 

233

 

238

 

5681

 

5769

 

Private Apart. Availability rates (%)

 

**

 

**

4.8

5.7

 

5.1

 

5.7

 

1.0

 

5.9

 

4.9

 

5.8

 

Percentage change (%) of Ave. Rent

 

2.7

 

**

2.0

3.4

 

1.3

 

3.7

 

1.6

 

**

 

1.5

 

3.6

 

Private row (Townhouse) and Apart. VR (%)

 

**

 

**

4.2

3.6

 

3.2

 

3.3

 

0.7

 

4.4

 

3.5

 

3.6

 

Townhouse and apart. Average rent ($)

 

594

 

618

737

751

 

830

 

849

 

908

 

925

 

802

 

819

 

Townhouse and apart. Units in the universe

 

114

 

115

1706

1739

 

3708

 

3757

 

314

 

314

 

5842

 

5925

 

Townhouse and apart. Availability rates (%)

 

**

**

4.9

5.6

5.1

5.6

1.1

5.5

4.8

5.7

Estimated % change of ave. rent

 

2.7

 

**

2.0

3.4

 

1.4

 

3.6

 

1.6

 

**

 

1.5

 

3.5

 

 


[1] Burelton, Derek, Mareil, Jaques. (July 2012). Provincial Economic Update. TD Economics. Retrieved at <http://www.td.com/doc/PDF/economics/qef/prov0712_forecast.pdf.> (1-16)

[2] CMHC Reports (Sept 2012) Canadian Housing Market: Stats to slow, Resale Stable in 2013. The Housing Market Outlook. Retrieved at <www.cmhc-schl.gc.ca/odpub/esub/61500161500_2012_Q04.pdf?fr=1352820937211> (1-32)

[3] Burelton, Derek, Mareil, Jaques. (July 2012). Provincial Economic Update. TD Economics. Retrieved at <http://www.td.com/doc/PDF/economics/qef/prov0712_forecast.pdf.> (1-16)

[4] Ibid                                                                                                                                       

[5] Ibid

[6] Marcil, Jaques. (October 2002) Provincial Economic Update. TD Economics. Retrieved at <www.td.com/documents/PDF.economics/quef/prov.1012_update.pdf>

[7] Burelton, Derek, Mareil, Jaques. (July 2012). Provincial Economic Update. TD Economics. Retrieved at <http://www.td.com/doc/PDF/economics/qef/prov0712_forecast.pdf.> (1-16)

[8] Ibid

[9] CMHC Reports. (September 2012) Canadian Housing Market: Starts to Slow, Resales Stable in 2013. Housing Market Outlook. Retrieved at <www.cmhcschl.gc.ca/odpub/esub/61500161500_2012_Q04.pdf?fr=13528820937211> (1-32)

[10] Ibid

[11] Ibid

[12] Ibid

[13] Ibid

[14] CMHC. (January 2012) Rental Market Report- Ontario Highlights. CMHC Housing Market Information. Retrieved from < www.cmhcschl.gc.ca/odpub/esub/61500161500_2012_Q04.pdf?fr=13528820937211>

[15] Ibid

[16] Lobo, Derek. “Stable Markets in Peterborough and Belleville.” Derek Lobo-Apartment Expert. Word Press. 14 May 2009. Retrieved at < http://www.rockaptadvisors.ca/blog/?p=212

[17] Ibid

[18] Ibid

[19] Ibid

[20] Ibid

[21] CMHC. (January 2012) Rental Market Report- Ontario Highlights. CMHC Housing Market Information. Retrieved from < www.cmhcschl.gc.ca/odpub/esub/61500161500_2012_Q04.pdf?fr=13528820937211>

[22] Lobo, Derek. “Stable Markets in Peterborough and Belleville.” Derek Lobo-Apartment Expert. Word Press. 14 May 2009. Retrieved at < http://www.rockaptadvisors.ca/blog/?p=212

[23] Ibid

[24] CMHC. (January 2012) Rental Market Report- Ontario Highlights. CMHC Housing Market Information. Retrieved from < www.cmhcschl.gc.ca/odpub/esub/61500161500_2012_Q04.pdf?fr=13528820937211>

[25] CMHC. (January 2012) Rental Market Report- Ontario Highlights. CMHC Housing Market Information. Retrieved from < www.cmhcschl.gc.ca/odpub/esub/61500161500_2012_Q04.pdf?fr=13528820937211>

[26] CMHC. (January 2012) Rental Market Report- Ontario Highlights. CMHC Housing Market Information. Retrieved from < www.cmhcschl.gc.ca/odpub/esub/61500161500_2012_Q04.pdf?fr=13528820937211> (chart pg 17-22)

 

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Tom McEvoy

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