Peter Norman, a housing economist with the national firm Clayton Research, appeared at a forecast breakfast hosted by the WinnipegREALTORS® Association in January. He is involved in publishing monthly Clayton Research reports that highlight housing starts and existing home sales trends.
Clayton’s January 2007 report spoke positively about job and income growth in Western Canada. Using historical standards, the report also indicated that long-term mortgage rates will remain low and stable.
The report included a few cautionary factors such as a prediction for some modification in economic growth in 2007 and the continuation of house price increases that will place a strain on housing affordability. Norman also told REALTORS® that the shortage of serviced lots and high labour costs will constrain the new housing supply.
Norman’s commentary was backed up by a number of informative charts. It is interesting to note that, despite Winnipeg’s double-digit price increase of existing homes in 2006, it pales in comparison to Alberta’s rapid increase of over 30 per cent. New home prices in Alberta went up nearly 50 per cent, whereas Manitoba’s new home price increase was less than 10 per cent.
One Clayton Research chart used in the presentation illustrated Winnipeg’s tight existing MLS® market supply.
Recognizing the problem, WinnipegREALTORS® officials over the last few years have warned that there is a need to increase the existing home inventory. Their concerns also apply to the new home supply, especially in the southwest quadrant of Winnipeg where new lots are extremely limited, as well as to apartment units since the vacancy rate still hovers around one per cent. The current reality is that Winnipeg needs to have a healthy supply in all facets of the local real estate housing market. Despite some improvement in existing resale home supply — active MLS® listings were up nine per cent in 2006 — it is not enough to make up for the deficiencies in rental and new home starts.
It is evident that a limited resale housing supply pushes home prices upward. Even with MLS® listing increases in 2006 over 2005 and 2004, Norman indicated that a sellers’ market remains entrenched.
Using Clayton Research’s five-month inventory benchmark as the dividing line between a sellers’ and buyers’ market, Norman predicted there will be many multiple-offer situations this year due to a prevailing sellers’ market.
The need is for continued improvement in active listings and a slight let-up in demand to help moderate the double-digit price increases that have occurred over the past four years. A good sign is that the WinnipegREALTORS® Association’s January 2007 MLS® figures showed that price gains fell to under 10 per cent for the month.
The Canadian Real Estate Association’s figures on existing MLS® sales since 1993 illustrate sales have consistently been pushed upward since 2002. CREA is not far off from reaching its next high-water level of 500,000 MLS® units sold across the nation.