WinnipegREALTORS®’s fifth annual forecast breakfast began with a “state-of-the-union” address by 2010 president Ralph Fyfe. He conveyed a message of pride in what the 1,600-strong membership has been able to accomplish, despite difficulties encountered in the marketplace.
The continued strength of the local real estate market has received national headlines proclaiming that Winnipeg will lead the way in 2011. Fyfe is confident that local REALTORS® are up to the challenge of assisting buyers and sellers in such a high-demand market to complete what is often the largest single investment of their lifetime.
The keynote speaker was Michael Benarroch, dean of the faculty of Business and Economics at the University of Winnipeg. He spoke about the current global financial crisis and the recovery now underway. He said the recovery is still fragile, especially in the U.S. where the economy has little room to manoeuvre.
He said the good news for Canada was that it came out of the recession relatively unscathed in comparison to the U.S. The U.S. debacle resulted from the approval in 2007 of $2 trillion in sub-prime mortgages, which represented 20 per cent of the total mortgage market. From 2005 to 2007, 40 per cent of mortgages were adjustable, meaning buyers were counting on a continual upward climb in house prices, but the opposite occurred. This was hardly the recipe for solid financial planning.
Many of the adjustable mortgages were financed through the bundling of mortgage-backed securities into packages that were then sold globally. Again, these securities relied upon increased home values. When home values collapsed, the securities followed suit.
Benarroch showed how concentrated the sub-prime market was in some areas of the U.S. For example, Nevada had the highest percentage of mortgage payments over 90 days late. Another chart emphasized the difference between American and Canadian mortgage delinquency rates — over 25 per cent in the U.S., a mere two per cent in Canada.
In the aftermath of the sub-prime debacle, states and the U.S. government intervened to bail-out financial institutions. The U.S. nationalized Fannie May and Freddie Mac, which held 50 per cent of the mortgages in the U.S. The Americans used deposit guarantees, emergency credit, expanded liquidity, reduced interest rates and fiscal stimulus spending to cushion the economy from the job losses resulting from the crashing sub-prime market.
While Canada’s recession officially ended in the fourth quarter of 2009, Benarroch said there was a slow recovery in 2010. Last year, there was a continued reliance on government stimulus, while the higher Canadian dollar hurt exports.
Canada’s economy is projected to grow by about 2.5 per cent in 2011. The biggest challenge is debt around the globe and in Canada. If debt is reduced too rapidly, it can derail the now fragile recovery.
Some of the most encouraging news is Canada’s reduced unemployment rate (7.6 per cent in January 2011), resumption of consumption and modest investment growth, and a big recovery in profits and commodity prices. Interest rates also remain historically low.
On the downside, there are concerns about public and personal debt levels, especially if interest rates start climbing in 2011. Given the uncertainty, Benarroch said there is an increased need for international economic co-ordination.
Manitoba certainly fared better than most of Canada in 2009, with only a 0.3 per cent decline in GDP (2.6 per cent for Canada). In 2010, however, its growth rate of 2.2 per cent fell behind Canada’s rate of 2.9 per cent. Manitoba’s unemployment rate at 5.3 per cent is below Canada’s 7.8 per cent. Manitoba averaged weekly earnings growth of 1.7 per cent (0.5 per cent in Canada) last year, a big jump in housing starts and a population increase of 1.3 per cent.
On the other hand, there were declines in private investment and corporate profits, along with a weak U.S. demand for Manitoba exports.
Government finances also pose a risk. The Manitoba deficit stands at $555 million and the province is expected to remain in a deficit situation over the next five years. There are also some concerns about a future drop in equalization payments when the federal government moves to get its own debt under control.
Greg Dandewich, senior vice-president of Economic Development Winnipeg (EDW), said the city’s diversity, stability, resilience and predictability helped it survive the recession.
He highlighted EDW’s new Yes! Winnipeg initiative, which was established to leverage funds from the private sector in order to attract new business and help existing local businesses to expand.
His presentation used charts that highlighted Winnipeg’s population growth. One chart showed that the city had grown by 44,000 people over the last 10 years, while the Winnipeg CMA (city and surrounding rural municipalities) grew by 54,000 people. This growth is in stark contrast to the 1990s when Winnipeg’s population was relatively static.
More impressive was a chart showing that the Winnipeg CMA will grow by 210,000 and the city by 174,000 people over the next 10 years.
Dandewich made the case that our city is undergoing change and we should be prepared to meet the challenges that come with significant growth.
Winnipeg is forecast to create almost 27,000 jobs over the next five years. Ninety per cent of the growth will be in the service sector with the remaining 10 per cent in manufacturing and construction. While the annual job percentage growth was not as high as banner years such as 2000 and 2007, it was still in line with, or better than, most previous years.
Another really positive aspect for Winnipeg is its strength in retail sales. A high performance level in 2010 reflected consumer confidence and population growth. A marquis project confirmed in 2010 was Swedish furniture retailer IKEA’s announcement of a large outlet in southwest Winnipeg. Besides this $70 million project, Dandewich said there are many major construction projects planned or underway, including the Canadian Museum for Human Rights. Two major infrastructure projects given the green light are the Chief Peguis Trail extension and the Disraeli Paired Bridges project. Expansions are taking place at Standard Aero and Bristol Aerospace. Dandewich reminded the 300 people in attendance that Winnipeg’s Aerospace industry has annual revenues of over $1.6 billion, and that it is the largest such industry in Western Canada and third largest in the nation.
As well, the CentrePort Canada Way is well underway. The bypass roadway is of long-term strategic importance to the development of Winnipeg’s $2-billion transportation sector. And, there are already signs of new opportunities arising as a result of the project.
The financial services sector is contributing over $4 billion towards Manitoba’s GDP. There are 26,000 people directly employed in the finance, insurance and real estate sector in Winnipeg.
From 2011 to 2014, the outlook for annual industrial growth rate in the different sub-sectors ranges from a low of 2.3 per cent up to a high of 2.8 per cent. The employment outlook for the same period is more subdued, with transportation and warehousing being the highest at 2.2 per cent, while non-commercial services are predicted to post a rate of 0.5 per cent.
Another Dandewich chart indicated the most pressing challenges are the continued weakness of the U.S. economy, the European debt crisis, attracting investment, access to skilled labour and our infrastructure deficit. But Dandewich’s long-term economic outlook for Winnipeg is favourable due to our diversified economy and in-migration of skilled labour. He said an increased labour pool and the development of skilled trades and professionals is critical to attracting long-term investment in Manitoba. “Companies will set up and expand where there is skilled labour,” Dandewich stressed.
According to the Conference Board’s Autumn 2010 outlook for Winnipeg: “The medium-term outlook features steady output advances, accompanied by persistent declines in the unemployment rate, healthy population growth, and ongoing housing starts expansion.”