A Brief Report on the Real Estate Sector in Sault Ste. Marie

Introduction

Sault Ste. Marie, Ontario is home to a variety of industries including steel, forestry and BPO services. The total population is about 75,000 people, making it the third largest city in Northern Ontario.  However, this number has fluctuated some during the past few years especially true during the recession.

The Local Economy

The local economy is dependent on large organizations such as the Essar Steel Algoma, Tenaris, St. Mary’s Paper, Nucomm, Cross Country and Sutherland Global. The OLG (Ontario Lottery and Gaming Corporation) is also a major employer. These organizations are not just the major employers and contributors to the economy, they also represent the variety of industries enjoyed by the city.

The city primarily depended upon the Algoma Steel, but fluctuations in the industry, followed by the boom in forestry allowed for the establishment of other organizations. The rise of the BPO industry also allowed for the diversification in the number of jobs available in the city.

The recession had a massive impact on the city’s economy, as it was at this time Algoma Steel needed to call on the government for support. However, the city’s population was on a decline even before the economic downturn. Recently, there has been a minor rise in the total population.

The city also has many tourist attractions, including heritage centers, historic sites and an island. Tourism is also one of the noticeable sources of income for the city, and the local government is currently investing in improving the sites in order to attract more tourists.

The city also has several educational institutes, the most prominent being the Algoma University and the Sault College. The universities and colleges play a key role in increasing the population growth rate by attracting students from all over the world. Currently however, the majority of students are from the immediate surrounding areas.

Demographics

The city’s residents are primarily Caucasians, with a noticeable number of people with European origins. There is a small number of minorities and about 85% of the people are Christians. About 13% of the population has no religious affiliation.

Real Estate

The CMHC reported a healthy rate of construction for Sault Ste. Marie in the second quarter of 2012 with a total of 36 new units begun during this time. This was a positive sign for the city’s limited construction industry. The average price of new single detached homes has increased to around 365,000. The resale market is also growing slowly and steadily. There was a 1% increase in the resale market with the average prices ranging between 150,000 to 153,000 dollars.

There is no activity in the market when it comes to condominiums and/or rentals. The reason for this is that the population of the city has been declining over the years and buildings for dense population are simply not needed. The increased activity in the single detached home sector is a good sign, but the lack of in-migration is a cause of concern for the authorities.

Table Based on Data from CMHC

As can be observed from the table, the single housing starts were highest in 2008 and suffered a major setback in 2009 and 2010. But the increased growth in 2011, combined with the recent data which indicates further growth, is a positive sign for the Sault. A recent report by MPAC indicates that there has been a 25% increase in the single home prices in Sault Ste. Marie, although this is expected to decrease slightly, as prices drop in most regions of the country

Table courtesy CMHC

Forecasts

The current trends indicate that housing prices and the construction of single detached homes will continue to increase in the near future, although they will most likely decrease over the long termResale activity will also be high for single detached homes, however, there is little activity in the condominium, apartments and rental property sectors.

Should all factors remain constant, the current trends in Sault Ste. Marie are likely to continue. However, any changes in the industries that are the economic foundation of the city can have a major impact on the property values and construction activity.

Discussion and Conclusion

The city of Sault Ste. Marie has seen its share of ups and down in the last decade. Any economic changes, positive or negative effect the population; and thatpopulation is the key factor which determine the values of property and the extent of the construction activity.

The recent rise in value of single detached homes, and the increased construction activity in that sector, indicates that there are a moderate yet healthy number of people to support the demand for real estate in the current market. The reselling activity has also primarily been in the single detached homes sector making existing single detached homes a valuable commodity.

In cities where in-migration trends are high and the population is growing at a fast pace, the need for high density residential buildings arise. Apartments and condominiums serve the purpose of housing many people in a small area. The property values in such areas also rise to the point where many have to opt for a rental residential arrangement. Unfortunately all such activity is missing in Sault Ste. Marie.

The reason why there is no demand for high density population building is the lack of growth in the local industries. Even after the government stepped in to support Algoma Steel during the recession, is the company has not been expanding or growing since. The forestry industry in the area also seems to be stagnant.

The BPO industry is facing stiff competition from the Aboriginal companies and is not growing at a rate which would encourage people from other areas to move to Sault. Ste Marie. Simply put, the number of jobs available appears to be enough to sustain the local populace, but not enough to encourage in-migration.

That being said, there has been minor growth in the economy in the last couple of years. This minor growth has resulted in the increase in demand of single detached homes. Steps need to be taken in order to promote a faster growth rate. For now, the only sensible investment in Sault Ste. Marie real estate is single detached homes, both old and new.