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An "Orderly Slowdown" in Quebec

By Ann-Margret Hovsepian

While housing affordability declines across the country, Quebec's price growth has tapered to a single-digit rate compared to the gains seen two or three years ago. "Most of Quebec's housing markets are in the midst of an orderly slowdown," says Derek Holt, assistant chief economist at the RBC Royal Bank, adding that the province's condominium market is the exception to the deterioration in affordability among the four housing segments. The other three - detached bungalows, townhomes and two-storey homes - saw mild price gains in the range of four to six per cent, mainly because of slow income growth, higher mortgage rates, property taxes and rising utilities costs.
At RE/MAX Quebec, executive vice-president Sylvain Dansereau says the 2007 year-end projection for average price in Montreal is an estimated $224,600, with sales matching 2006's record of close to 50,000 units.
Residential starts are also declining in Quebec, and builders report that they expect this slowdown to continue. According to the CHBA's June/July 2006 Pulse Survey, new home builders expected total starts to reach 45,000 units, down from the 50,910 units started in 2005. Starts are expected to decline further in 2007, to about 40,000 units.
In September, 2,927 housing units were started in the province's urban centres - a decrease of 23 per cent from the same month last year. For 2006, Quebec has seen 27,486 starts in urban centres, a drop of 9 per cent from the first nine months of 2005. "[These numbers] are perfectly in line with the forecasts that we published a year ago," says Kevin Hughes, senior economist at Canada Mortgage and Housing Corporation. "I anticipate that new starts will maintain this pace for the rest of the year."
A 20 per cent drop in single-detached starts in September (1,185 units compared to 1,477 the year before) reflects a significant decrease in activity in major cities such as Montreal (down 33 per cent), Québec (16 per cent) and Sherbrooke (36 per cent). Smaller cities (50,000 to 99,999 inhabitants) posted a gain over the same month last year while rural areas had mixed results.
Rental housing also saw a decline in starts. In the second quarter of 2006, there was a 21 per cent drop in starts compared to the same period last year, and retirement homes accounted for a significant share of the 2,562 units started.
In CHMC's third-quarter Housing Now report on Quebec, the decline in starts is attributed to "moderate migration and economic growth, as well as a greater availability of existing homes for sale, for which the growth in prices has considerably slowed down." The resale market in Quebec continues to resist the declines seen in the construction sector. A growth in personal disposable income and good borrowing conditions contributed to a 2.4 increase in MLS transactions (35,341) during the first five months of the year, compared to 2005. According to the Canadian Real Estate Association, the average price recorded on the MLS rose by seven per cent over the first five months, reaching $192,407, a slight slowdown from the price increases seen in 2005 and 2004. CMHC anticipates that slower sales, price growth and rising listings are bringing the province's resale market toward a more balanced state and, as a result, fewer buyers will turn to the new home market. The CHBA Pulse Survey reported that new home builders in Quebec plan "some shift in the upcoming year toward targeting move-down buyers and the custom segment of the move-up market, away from first-time buyers."
On a brighter note, about one-third of Quebec renovators reported increased activity over the past 12 months, while only one in six reported lower activity, and this increase in renovations is expected to continue.
HB


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