Housing market should remain strong in 2006

As we come to the end of another successful year for Winnipeg’s real estate market, it’s again time for housing economists to have their say about the year ahead. 

The Winnipeg Real Estate Board is predicting that 2006 should be another good year for resale real estate. 

While the predictions may not be something you want to bet your life savings or mortgage on, you should still be mindful of what is being said about the 2006 market.

Last week,Canada Mortgage and Housing Corporation at the Manitoba Home Builders’ Association’s 2005 Housing Forum and provided its own housing outlook. Their regional economist, Vinay Bhardwaj, was quite positive about the prospects for housing because of Manitoba’s population growth, in part due to the province’s successful immigration program. 

Because the apartment vacancy rate continues to remain stubbornly low at only 1.1 per cent, newcomers to Winnipeg by default often need to find a home. So, they either buy an existing one or seek out a new home. Either way, both the resale and new home markets benefit by the increased demand. 

And, Bhardwaj does not think the increase in interest rates will do anything to derail a strong housing market next year. He feels any increase may only be 100 basis points, or one per cent, and that is not significant enough a change.

Dianne Himbeault, CMHC’s senior market analyst for Manitoba, is equally optimistic about Winnipeg housing activity performing at high levels. She predicts single-family starts of 1,800 (contingent on lot availability), similar to what is forecast to be the year-end number for 2005. 

Himbeault said multiple-family starts should track slightly higher in 2006 and reach 800 units.

She is very bullish about the resale market, predicting 12,500 sales, a mark never attained in Winnipeg. The real estate board is confident there will be over 12,000 MLS® sales this year (will beat out its best previous year in 1987), but that total number includes some non-residential property sales. 

CMHC is predicting 11,700 residential sales for this year which is in line with the board’s year-end projection.

Himbeault feels one improvement will help move sales even higher in 2006, which is an increase in new MLS® listings. Year-to-date board MLS® listings are up 15 per cent and she sees that trend continuing next year. 

It is an encouraging sign, especially since demand will not let up in 2006 and new lots will be in short supply until Waverley West comes on stream in late 2006 or early 2007.

Himbeault foresees modest house price increases due to more listings coming on to the market. Nevertheless, as can be seen by the average MLS®, the forecast is still for an eight per cent increase in 2006. She predicts new home prices will rise 10 per cent next year.

Looking to the national scene, here are some comments and forecasts noted by the Canadian Real Estate Association:

It will be a soft landing for MLS® home sales and housing starts in 2006, according to economist projections made at the October meeting of the Economic Research Committee of the Canadian Home Builders’ Association. The ERC meets on a quarterly basis and provides a forum for national housing economists to share information, data and forecasts.

The Canadian Real Estate Association’s presentation dealt with MLS® home sales reaching their fifth consecutive annual record in 2005, and will reach their third highest annual level on record in 2006. Seasonally-adjusted sales set consecutive quarterly records in the second and third quarters this year, and activity is running four per cent above where it stood after the first nine months of 2004.

CREA also predicts Canada’s resale housing market will become more balanced next year as sales decline slightly and new listings remain high. This will slow the pace of price increases, although strong year-over-year increases in average price will likely persist into the second quarter of 2006. 

CREA will be releasing a new forecast for the 2006 and 2007 MLS® resale housing markets later this month.

Three forecasts for housing starts in Canada in 2006 were presented at the meeting. All three forecasts said housing starts would decline in 2006 compared to 2005, but the decline is not expected to be severe and starts should remain above 200,000 next year. 

The CHBA was the most bullish about Canadian housing starts, predicting 215,000 units in 2006, while Clayton Research predicts the number of starts will be slightly above 200,000 units. CMHC’s prediction falls right in the middle at 207,000 units.

Global economic factors were a major focus of the ERC meeting. 

CHBA chief economist Peter Andersen said global growth was expected to decline slightly in 2006 because of slower growth in China, but will nonetheless remain strong. Andersen also indicated that U.S. growth had been very strong this year prior to Hurricane Katrina. The hurricane is expected to slow the pace of U.S. growth in the near-term, but is expected to have a neutral impact on growth in the medium-term.

Anderson also said that the U.S. economy should pick up again in the second half of 2006, as refining capacity comes back online in the Gulf of Mexico, and as insurance claims are settled and rebuilding activity gains steam. The Bank of Canada also expects economic growth in China to slow next year and U.S. growth to rise slightly. Their forecast for global economic growth in 2006 was on par with growth in 2005, with slower growth in China offset by a sharp increase in economic activity in the European Union next year.

The bank also said that the Canadian economy is performing stronger than it had forecast in the first half of the year. In its view, the Canadian economy is now operating at full capacity and it is expected to continue to operate at that level throughout 2006.

Capacity constraints and the pass-through of higher crude oil prices to consumers will put upward pressure on inflation going forward. To keep inflation on target, interest rate increases will be required over the next year and a half.