According to the Canadian Funding Corporation, with the expected decline in employment, activity on both the new and existing home markets in the Montréal census metropolitan area (CMA) will slow down in 2009 and then pick up again in 2010.
Labour market easing according to Canadian Funding Corporation
After having edged down by 0.1 per cent between 2007 and 2008, the average employment level in the Montréal CMA will decline again in 2009. In fact, this past April, there were 33,600 fewer jobs than at the same time in 2008 (-1.8 per cent). All the jobs lost were full-time positions, as part-time employment posted a gain of 1.2 per cent over April 2008. Young people were particularly hard hit, as the employment level registered a decrease of 6.2 per cent among people aged from 15 to 24 years.
Retail trade is one sector where the decline in employment will be particularly felt in 2009. In general, an economic slowdown, as can currently been noted, causes the growth in incomes to slow down, which tends to reduce consumption and, by the same token, retail sales. The manufacturing sector in Montréal, which is heavily geared to international trade, will also sustain a decrease in employment this year. The value of the Canadian dollar is now nearly 20 per cent lower than it was six months ago, which is helping exporters to have more competitive prices, but the positive effects of this depreciation of the loonie are being largely offset by the decline in global demand. However, the various provincial and federal infrastructure investment programs, which will provide funding for such projects as the reconstruction of the Turcot interchange, the development of the Quartier des spectacles and the expansion of the Museum of Fine Arts, will help support the job market in the Montréal CMA. The impact of most of the projects will be more significant during the second half of 2009 and in 2010 and will partially counter the downward pressure on the job market. Still, we Economic decrease of 2.2 forecast an overall Forecasts per cent in the employment level in 2009, which will push up the average unemployment rate from 7.4 per cent in 2008 to 9.2 per cent this year.
After a contraction of the economy this year, economic growth in Quebec will resume in 2010. In this context, and considering the many infrastructure projects that will get under way over the coming year, we forecast a slight increase of 0.2 per cent in the Montréal CMA
employment level in 2010.
Mortgage rates to remain favourable
Mortgage rates are expected to be relatively stable throughout 2009, remaining within 25-75 basis points of their current levels. Posted mortgage rates will increase very gradually during the course of 2010, reflecting a rise in Government of Canada bond yields. For 2010, the one-year posted mortgage rate will be in the 4.75-6.00 per cent range, while the three- and five-year posted mortgage rates are forecast to be in the 5.00-6.75 per cent range.
Immigration supporting housing demand
In 2007, net migration in the Montréal CMA reached 21,690 people, the highest level in five years. This number accounted for 78 per cent of the net level for the province of Quebec that year, a particularly large share when compared to the average of 58 per cent for the previous five years. The Montréal area therefore receives a significant share of the newcomers to the province. In addition, according to Statistics Canada preliminary estimates, net migration in the province of Quebec continued to rise in 2008. Net migration in the Montréal area in 2008 probably attained about 25,000 people.
Over the next two years, net migration in the area will maintain this momentum. First, the Quebec government wants to substantially increase the number of immigrants, with a target of 55,000 newcomers by 2010, which will raise the net migration level in the CMA. Also, the recent weakening of economic conditions out West, along with the high cost of living there, will cause the number of people leaving the Montréal CMA for other provinces to decrease over the next two years. As a result, we forecast that more than 27,000 people will settle in the Montréal area in 2009 and 2010.
Residential construction expected to decline
According to our forecasts, housing starts in the Montréal CMA should fall in 2009 and reach 17,700 units. In fact, in the first four months of the year, foundations were laid for 26 per cent fewer dwellings than during the same period last year. Several factors will lead to a decline in residential construction this year in the Montréal CMA. First, the economic uncertainty is causing some households to delay their new home purchases. Second, the increase in supply on the resale market is giving more choice to potential buyers, providing increased competition to the new home market. Third, the rate of starts has been higher than the pace of household formation for the last five years. Over the long term, housing supply cannot continually exceed the demand that is created annually. As a result, residential construction levels should adjust to favour a return to balanced conditions and be more in line with household formation in the Montréal area.