Economic & Real Estate Outlook IMBA CONFERENCE April 2011 TED TSIAKOPOULOS Regional Economist CMHC ttsiakop@cmhc.ca Housing market intelligence you can count on
AGENDA Key Insights for 2011/12 Housing Outlook: Sales & Prices Factors Shaping Housing Outlook Risks to the Outlook Summary Q & As
Key Insights for 2011/12 Canadian/Ontario housing market stabilizing Southern Ontario to lag activity in Northern Ontario & Western Canadian markets Pi Prices to grow below bl long term rate of growth No evidence of housing price bubble Inflation and interest rates will rise First time buyers sensitive to interest rates, demographics Outlook still subject to uncertainty/risk
Canadian Sales Stabilize But Less Impetus For Growth in 2011 Existing home sales, saar - CANADA 600000 550000 500000 450000 400000 350000 300000 250000 200000 150000 2002Q1 2002Q3 2003Q1 2003Q3 2004Q1 2004Q3 2005Q1 2005Q3 2006Q1 2006Q3 2007Q1 2007Q3 2008Q1 2008Q3 2009Q1 2009Q3 2010Q1 2010Q3 2011Q1(F) 2011Q3(F) Source: CREA, CMHC forecast
But Sales Grow Faster in the West in 2011 CANADA -1.1% -21% 0.5% 8.5% 2.0% -5.9% 59% Source: CMHC MLS Forecast, CREA
Northern Ontario Leads Housing Market Activity in 2011 3.0% existing home sales, %chg - Ontario 20% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% -5.0% 50% -6.0% Northern Ontario Eastern Ontario Southern Ontario Western Ontario Source: CMHC MLS Forecast, CREA
Canadian Housing Prices Stabilize Existing home price, s.a - Canada 600000 550000 500000 450000 400000 350000 300000 250000 200000 150000 2002Q1 2002Q3 2003Q1 2003Q3 2004Q1 2004Q3 2005Q1 2005Q3 2006Q1 2006Q3 2007Q1 2007Q3 2008Q1 2008Q3 2009Q1 2009Q3 2010Q1 2010Q3 2011Q1(F) 2011Q3(F) Source: CREA, CMHC forecast
Are Real Estate Markets Defying Logic? Maybe House Price to Income Ratios Are High Household Debt to Income Ratios Are High Source: Statistics Canada, Bank of Canada, CMHC
Deeper Analysis Suggests No Housing Bubble Exists 103 Actual Resale Price vs Fundamental Price Ratio - ONTARIO 102 101 100 99 98 97 96 2009Q1 2009Q2 2009Q3 2009Q4 2010Q1 2010Q2 2010Q3 2010Q4 Actual vs Fundamental Price Ratio Fair Market Value Source: CREA, CMHC model estimates
The Big Picture & Why it Matters Why is housing momentum set to slow?
DRIVERS OF MORTGAGE BROKER BUSINESS ECONOMY (SHORT RUN) HOUSING MARKETS & POLICY (SHORT & LONG RUN) MORTGAGE BROKER BUSINESS CREDIT CONDITIONS (SHORT RUN) DEMOGRAPHICS (LONG RUN)
2010 GDP Growth Ontario Among Leaders 6 Real GDP % - 2010f 5 4 3 2 1 0 BC ALTA SAS MAN ONT QUE NFLD CAN Source: Statistics Canada, CMHC forecast (f)
Migratory Inflows from Rest of Canada Improve in 2010 10,000 Net provincial migratory inflows to Ontario 7,500 5,000 2,500 0-2,500-5,000-7,500-10,000 000 00 01 02 03 04 05 06 07 08 09 10 Source: Statistics Canada
As Does Ontario`s Share of International Migration 85% Ontario as share % of Canada immigration 75% Long Term Avg 65% 55% 45% 35% 25% 2000Q1 2000Q3 2001Q1 2001Q3 2002Q1 2002Q3 2003Q1 2003Q3 2004Q1 2004Q3 2005Q1 2005Q3 2006Q1 2006Q3 2007Q1 2007Q3 2008Q1 2008Q3 2009Q1 2009Q3 2010Q1 Source: Statistics Canada
But Canada's Economic Story Changing MANUFACTURING INVESTMENTS 2009/10 story ENERGY/NON ENERGY INVESTMENTS 2011/12 story
Resource Poor Emerging Economies Growing Real GDP % chg 10 8 6 4 2 0-2 -4-6 2000Q1 2000Q3 2001Q1 2001Q3 2002Q1 2002Q3 2003Q1 2003Q3 2004Q1 2004Q3 2005Q1 2005Q3 2006Q1 2006Q3 2007Q1 2007Q3 2008Q1 2008Q3 2009Q1 2009Q3 2010Q1 2010Q3 2011Q1 2011Q3 World Advanced economies Emerging g economies Source: IMF
Western Canada Tapping Into Emerging Markets 25 20 15 10 5 % share of exports to emerging markets 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source: Industry Canada Source: Industry Canada Western Canada Ontario
6% 4% 2% 0% 2% 4% 6% 8% But US Economy Improving US GDP Growth - Annualized 2008Q1 2008Q2 2008Q3 2008Q4 2009Q1 2009Q2 2009Q3 2009Q4 2010Q1 2010Q2 2010Q3 2010Q4 Source: US Bureau of Economic Accounts
Business Spending Will Lead During Expansion Phase 6 5 4 3 2 1 0 1 2 3 Quarterly real growth (2002$) - ONTARIO 09q3 09q4 10q1 10q2 10q3 Consumption Growth % Business Spending Growth % Source: Provincial Economic Accounts
Credit Growth is Slowing in Canada Credit Growth, annualized - Canada 12% 10% 8% 6% 4% 2% 0% Source: Statistics Canada
Canadian Households Will Pay Down Some Debt 600,000 $ 500,000 400,000 Household Assets 300,000 200,000 100,000 Household Debt 0 1990Q1 1991Q1 1992Q1 1993Q1 1994Q1 1995Q1 1996Q1 1997Q1 1998Q1 1999Q1 2000Q1 2001Q1 2002Q1 2003Q1 2004Q1 2005Q1 2006Q1 2007Q1 2008Q1 2009Q1 2010Q1 Sources: Statistics Canada, National Income and Expenditure Accounts, National Balance Sheet Accounts. 6
First Time Buyers Sensitive to the Interest Rate Story 8.8 5 yr posted mtg rate % 84 8.4 8.0 7.6 7.2 6.8 6.4 6.0 5.6 5.2 00 01 02 03 04 05 06 07 08 09 10 11 12 Source: CMHC Forecast, Bank of Canada, Statistics Canada
First Time Buyers Sensitive to the Demographic Story Ontario Population 4000000 3500000 3000000 2500000 Age 25-44 2000000 1500000 1000000 Age 45-64 Age 15-24 Age 65-99 500000 0 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 Source: Statistics Canada, CMHC
FORECAST Ontario Region Economic Outlook Preliminary Estimates, First Quarter - 2011 ECONOMY 2010e 2011f % chg 2012f % chg GDP 3.0 2.2 2.8 Employment % chg. 1.8 1.3 1.5 Labour Force % chg. 1.5 0.8 1.3 Unemployment Rate 8.7 8.2 8.0 Average Weekly Earnings %chg 1.8 2.0 2.5 MIGRATION Net Migration 102973 114100 10.8% 121200 6.2% Net International 111688 120000 7.4% 127500 6.3% Net Interprovincial -3200-5900 84.4% -6300 6.8% Source: Statistics Canada, CMHC Forecast *The outlook is subject to a heightened degree of uncertainty. Although point forecasts are presented in this publication, CMHC also presents forecast ranges and risks where appropriate. The forecasts included in this document are based on information available as of January 17, 2011. *
Economic & Housing Summary Ontario Housing Momentum Slows Through 2011 Growth in Housing Resumes in 2012 : Economy & Migration Offset Rate Hikes Emerging Economies Leading Global Growth Energy & Industrial Goods Sector Leads Western Canada & Northern Ontario Will Outperform Signs US Economic Recovery Sustainable Inflation Expectations and Interest Rates on the Rise