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First-time homeowners expected to drive demand for lower-priced condos

By Robert Hof

Good article from The Citizen – Robert

By NECO COCKBURN, Ottawa Citizen

November 9, 2012

First-time homebuyers will be fuelling the market for condos and possibly townhouses, rather than more expensive detached homes, for the next couple of years, according to a senior market analyst with Canada Housing and Mortgage Corporation.

OTTAWA — First-time homebuyers are expected to stabilize the housing market and drive demand for lower-priced condominiums downtown and in urban parts of the city’s west and southeast areas over the next couple of years, says a senior market analyst with the Canada Mortgage and Housing Corp.

“Rather than first-time homebuyers going for singles, they’ll be going for condos and possibly townhouses,” which are typically cheaper, said Abdul Kargbo at a CMHC housing outlook conference on Thursday.

“We’ll definitely see an increase in demand in downtown, but what we are equally going to see is the shift,” Kargbo said.

Because of tighter mortgage rules introduced by the federal government and a relatively flat economic environment, he said, “we are not going to see a continuation of higher-priced condos in the downtown being purchased. We’ll see a shift from higher-priced condos into less-expensive condos, and this will be driven by the first-time homebuyers.”

Demand for townhouses will similarly be strong in urban parts of the city’s east side, where they’re affordable, said Kargbo.

He added he doesn’t think there are too many condo projects on the go in the city. The number of completions is trending downward to a sustainable level, he said, while the inventory of unsold condos remains flat.

The downtown along with urban areas in the east, west and southeast are among those that have the greatest proportions of 25- to 34-year-olds, an age group that has moved to the city more than others, and with an average household income of $79,900 will push the home-buying trend, Kargbo said.

Overall, Ottawa’s housing market should continue to be “relatively stable” over the next two years, he said.

“We’re still seeing positive growth, except that the growth rate is not going to be as brisk as we’ve seen in the previous years.”

The city’s economy is expected to remain even despite public-sector cuts, according to the CMHC. It’s generally expected that the resale market will slow “just gradually”, but prices are expected to remain “positive”, senior market analyst Sandra Pérez-Torres told the conference.

A report issued by CMHC this week said new home construction and resale activity in Ottawa is expected to slow into the first half of next year before improving during the second half.

“In the immediate term, modest job growth and tighter mortgage market conditions will exert downward pressure on housing demand. While new mortgage rules introduced in July will have a stabilizing effect on the housing market longer term, the new rules will moderate sales slightly in the short run,” it states.

“Tighter mortgage rules combined with high home prices will continue to limit first time buyer demand. While some buyers will be able to substitute into a lower priced home, others will likely postpone their home purchase decision. However, a gradual improvement in job and income growth during the latter part of next year, combined with modest price increases should support Ottawa resale activity by the second half of 2013.”

The CMHC also released statistics Thursday indicating that housing starts in the city fell in October. The seasonally adjusted annualized rate of starts was 3,519 units last month, down from 6,220 units in September.

“Housing starts moderated largely due to the expected slowdown in apartment construction,” Pérez Torres stated in a press release. Cumberland had almost half of all housing construction in the city in October, according to the report.

In Gatineau, housing starts increased to 3,691 units in October from 1,847 in September, mainly because of multi-unit starts, particularly rental apartments.

ncockburn@ottawacitizen.com

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