Numbers show London’s housing boom is likely to continue in 2007.
Building on a good thing
Jeffrey Reed
Special to The London Free Press
January 22, 2007
Mark Twain may have written, “There are three kinds of lies: lies, damn lies and statistics.” But local figures tell the truth about this area’s home building industry. The London market clearly has its house in order.
With total London building permits reaching a record high of $772.7 million in 2006 — topping 2005 by 24 per cent, and the old record by 20 per cent — residential starts played a key role in what can rightly be labelled a construction boom. Last year, there were 2,037 permits issued, valued at $334.3 million.
It’s true, a huge chunk of that multimillion-dollar figure stems from highrise apartment construction, including a December start on a $35-million downtown apartment building by Tricar Developments. But 1,351 single-family detached units valued at $226.2 million is proof the local home building industry remains alive and well.
Canada Mortgage and Housing Corp. (CMHC) recorded a total of 3,674 new home starts in London and area in 2006, a 20 per cent increase from 2005, and the highest level since 1989. While single-detached starts rose one per cent to 2,090 homes, multi-family home starts, driven by the rental apartment market, rose 58 per cent to 1,584 units.
What’s more, numbers from the London and St. Thomas Association of Realtors (LSTAR) reveal record annual sales of 8,916, topping the old record of 8,903 set in 2004. Sales of detached homes rose 1.4 per cent, while condos were down two per cent.
Industry insiders concur, 2006 provided pleasant surprises. It was supposed to be the year numbers dropped. Yet, residential construction crews — especially in north and west London — continued to enjoy boom times.
The big question now is, will the good times keep rolling?
According to most local experts, the answer is yes, though they expect the pace to ease somewhat.
CMHC London market analyst Penny Wu says 2007 may equal or better 2006 figures.
“A continuation of low mortgage rates and an environment of growing employment will bode well for housing demand,” says Wu. “If these trends continue, 2007 will be stronger than 2006.”
Wu says London’s affordable housing market factors into the homebuying equation, too. With an average price of $188,942 — 6.1 per cent higher than 2005 — London homes are still more affordable than those in area communities, including Kitchener-Waterloo ($237,966), Hamilton-Burlington and district ($248,791), and of course, Toronto ($353,283).
The best-selling house type in London and Middlesex and Elgin counties was the two-storey home, which sold for an average $260,792. The bungalow finished second at $148,372.
According to LSTAR president Mike Carson, “We will be hard-pressed to keep up with the last few years, but London is still a stable economy and we are anticipating another good year.”
Carson says LSTAR anticipates “2007 will be a more balanced market.” He cites “housing that is more affordable than most communities to our east, current interest rates, strong employment, and diversity of housing” among reasons why a strong housing market will continue.
In mid-January, the Bank of Canada left short-term interest rates unchanged and predicted the economy will pick up a little after a recent downturn.
“There are signs that a significant amount of the adjustment in the U.S. housing and automotive sectors has already taken place and that the inventory correction in Canada is well advanced,” the central bank said.
Also in mid-January, Royal Bank of Canada announced it would raise residential mortgage rates, but only between one-tenth and one-fifth of a percentage point, concurrent with a rise of borrowing costs in the bond market. A three-year mortgage rose to 6.6 per cent, while the five-year rate increased to 6.65 per cent, and the 10-year rate to 7.4 per cent.
There’s a new twist affecting home sales, too. Sub-prime — or non-conforming — mortgages are adding variety to mortgage products and, despite rising house prices, are helping put Canadians into new homes sooner.
Jim Murphy, senior director, government relations and communications for the Canadian Institute of Mortgage Brokers and Lenders said, “Borrowers who do not qualify for a traditional mortgage pay a premium in their mortgage payments, usually a percentage point or two higher than a conventional mortgage. This is a particularly good product for new residents or self-employed individuals who do not have enough capital for a down payment, or a strong credit-rating history, but who do have steady income and employment.”
Local home building continued its extraordinary run in 2006.
New home starts in the London Census Metropolitan Area (CMA) — including London, St. Thomas, Central Elgin, Thames Centre and the townships of Middlesex Centre, Southwold and Strathroy Caradoc — were the highest since 1990’s 2,905.
And while the stronger boom period of 1987 through 1989 produced yearly totals of 5,175, 4,861 and 4,634 starts, current construction figures are still considered extraordinarily high.
Single-family detached home starts in the London CMA totalled a whopping 2,117 — 1,636 for the city of London — in 1989. Last year’s CMA total of 2,090, and city total of 1,449, demonstrate the strength of the local market.
According to CMHC, 227,400 new homes were built across Canada in 2006, the second-highest total in nearly two decades. Chief economist Bob Dugan credits low mortgage rates, solid employment and income growth plus high consumer confidence. CMHC forecasts a dip to 210,900 units nationwide in 2007.
London Home Builders’ Association president Derek Anderson says though multi-family highrise apartments boosted statistics, the home building market is solid. But he, too, expects a slight downturn this year.
“I don’t think we’re going to see anywhere near those kinds of numbers for new apartments. We’re also predicting about a 10 per cent decline in single-family starts . . . (to) about 1,900 new single-family homes,” he says.
While Anderson says the two-storey home “is not dying,” he acknowledges bungalows remain the hottest commodity among new home buyers in London.
“The big demand for one-floors has a lot to do with the empty-nester market,” he says. “A lot of people 60-plus are not wanting to negotiate stairs.”
Residential construction covers the entire city map. But north, west and southwest London — including the Fanshawe Park Road, Sunningdale Road and Southdale Road West corridors — are red hot home building areas.
Reid’s Heritage Homes, one builder busy throughout Southwestern Ontario, calls London the most attractive area municipality in which to buy a new home. Regional manager Alan Churchill says homebuyers get more bang for their buck in the Forest City than in cities to the east.
“We’re probably $30,000 to $40,000 less in London on the same unit than in Guelph,” says Churchill. “That has a lot do with our development in London, and planning by the city to create the infrastructure we need and which other communities don’t have. It’s great for the city (and) for the consumer. That’s availability.”
In fact, the CHBA, in its June/July 2006 Pulse Survey, said about one-third of new home builders report shortages and rising costs of serviced lots will be critical problems over the next year.
Thus far, London has escaped all factors related to significant drops in home building and buying. According to Sifton Properties’ senior land manager, Phil Masschelein, areas including Kitchener-Waterloo and the Greater Toronto Area are at least two years ahead of London in the building boom cycle. Despite the cycle, Masschelein says local numbers are “defying every expectation” within the London homebuilding industry.
While the single-family detached condominium still appears to be the flavour of the month, and while there is still a strong attached condominium market, Masschelein sees attached two-storeys gaining momentum in London.
“There are so many single-storey attached condominiums — something like more than 24 projects either under construction or planned. There are probably more one-storey attached condos than there are in demand. I think you’ll see a levelling out, where the two-storeys will take a little bit more of the marketplace. Still, one-storey and one-storey attached will lead.”
Churchill says Reid’s product priced in the $240,000 to $275,000 range is “outpacing our entry-level products in the $200,000 to $220,000 range.” He adds, “Everything is aligned for London to have another steady year.”
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