Ron Desjardins: Ottawa home builders experienced challenging market in 2012 but things look better for 2013

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OCN staff writer

Ottawa home builders experienced a challenging market in 2012, but things will likely be better this year, says Ron Desjardins, vice-president of PMA Brethour Group.

Brethour told about 100 Greater Ottawa Home Builders Association (GOHBA) members at the annual Sales and Marketing Committee Goodbye/Hello breakfast in January that builders sold 4,027 units in 2013, a decline from 5,110 in 2012.

The resale market fared relatively well, meanwhile, with 14,308 transactions.  Overall, housing sales declined by six per cent – but virtually all of this decline is reflected in the big drop in new home sales, Desjardins said.

“We were soft all year,” he said.  “The resale market performed quite well until mid-fall.  Overall they (resales) performed well through most of the year.

“We took 22 per cent of the market and resale, 78 per cent.  Normally the spit is 75/25 and we have been as good as 30 per cent market share.”

Why the decline, and what is ahead for next year?

Desjardins asserted the reason may relate to market uncertainty and the price gap between resale and new homes, which has widened in recent years.  “There’s more supply (in the resale market); a much broader price range, and they can deliver product in 30, 60 or 90 days, while we’re stuck nine, 10 or 16 months out before we can deliver the product.”

He said last year, Royal LePage identified the average two storey detached price at $389,167, while the average two storey new home sold for $482,600, — resulting in a $90,000 price gap.  “That’s very significant in making buying decisions.”

Nevertheless, Desjardinsis optimistic for 2013.  He predicts sales will increase to 4,600 or 4,700 units.  Condos, which boomed in 2012, including Minto’s success in selling 100 units at Lansdowne Park in the first 30 days on the market, “are not going to be as dynamic,” he said.  The condo market share will decline to 26 per cent with singles increasing to 34 per cent, with demand increasing for smaller lot single family homes and “a lot of new stacked (townhouse) stuff in the market.”

Desjardins predicts continuing declines in the eastern areas, in part because of supply shortages and the Department of National Defence and RCMP headquarters relocations.  Growth will be stronger int he west, with new projects in Kanata west providing market supply.

“I think prices are going to go up (in 2013),” he said.  “We are going to see some slight pressure on materials.  There will be a reduction in the number of (sales) bonuses in 2013; as sales increase, builders ease off on the bonus programs.”
Desjardins builds these positive observations on several factors, but equally, he notes some risks.

On the encouraging side:

  • Ottawa has the second highest average family income in Canada;
  • Interest rates are likely to continue to be low – with discounted rates about three per cent for a five year mortgage;
  • Ottawa’s unemployment rate continues to be relatively healthy at 5.8 per cent in December; compared to 7.1 per cent in Ontario.  “The only two cities that beat us were Calgary and Edmonton,” he said;
  • Location and product supply — “Other than Orleans we’ve got a ton of it;”
  • Consumer confidence is high.  He said surveys indicate 79 per cent of Canadians think 2013 will be a good year;
  • While there was a “ton of smoke last year” about federal government downsizing, “we’re seeing the bottom line impact isn’t that severe, and 2013 is getting back to normal;”
  • There’s a sizeable pool of first time buyers – 90 per cent of people under 25 are renters.

On the negative side:

  • The rental vacancy rate of 2.5 per cent in november is high, and the number could be as high as 3.2 per cent when you consider rental condos;
  • The resale marketplace continues to “be your number one competitor;”
  • The general world economic situation remains uncertain.  “We are in a white collar town – and everyone is well educated and informed;”
  • Canadian media publicity about a possible housing bubble may be scaring some people off;
  • New regulations regarding mortgage amortization rates are affecting affordability for first time buyers.  “About 17 per cent of first time buyers who could qualify in 2010 could not qualify now.”

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