Introduction
Thunder Bay is a highly populated city in North West Ontario, with a population of well over 140,000 people. Along with being a huge tourist attraction, the city is also known for its success in converting the local economy from one based on forestry to one that focuses on education and technology, while keeping true to its forestation roots.
The local Economy
About half of the city’s residents are of working age, which is a healthy ratio. The presence of several higher education institutes and research facilities ensures many knowledge-based jobs. This is especially true in the medical research sector, where the city has access to eastern, western and American upper mid western markets. It is also called the major transportation hubs of Canada due to the presence of air, shipping and rail traffic. The Trans-Canada Highway runs right through Thunder Bay, and is one of only two major routes for those traveling from or through Ontario to other parts of the country. Thunder Bay also has the sixth largest port in Canada.
The forestry industry and extraction of other natural resources was once the backbone of Thunder Bay’s economy. However, with natural resources being only a finite resource, officials actively pursued other ways to generate income and were successful in converting it to the knowledge based economy that it is today. The presence of a diverse young workforce also gave rise to cultural needs, and the city now has several museums, theaters and galleries which also contribute to the local economy.
Some of the other players in the local economy aside from forestry and medical research are the agricultural industry, construction, manufacturing, retail and trade, business, finance and education. Now that the economy doesn’t depend entirely on any single industry, it better ensures economic stability and resilience – even during the toughest of global crises.
Demographics
The city is multicultural when it comes to ethnic diversity and has a large population of people of European origins. The majority of the city speaks English as a primary language. French is also widely spoken, and the city has a large number of bilingual and multilingual residents.
Real Estate
Recent studies by the CMHC indicate that the migration rate towards Thunder Bay is higher due to a healthy growth rate in available jobs. Because Thunder Bay has such a wealth of resources and industries, this City is attractive to people from many different backgrounds.
However, the high job growth and high migration rate indicate that the competition for each job has become higher; as a result the average salary has gone down. Although still competitive within the City and compared to other parts of Ontario, the salaries offered are not comparable to some of the other parts of Canada.
Mortgage rates in Thunder Bay are fairly low when compared to those within the province and the country; and this has also contributed to the local economy, increasing employment in new home construction.
Forecasts
The single detached home prices are also on the up and the average resale prices are expected to rise by 9% in the last quarter of 2012. CMHC has gone as far as to predict that 2013 will be the year of reselling, and that the demand will outstrip the supply.
Prices for single detached homes are rising rapidly, with new constructions being performed in different areas of the city and the values of new and existing single houses expected to rise by 5% in 2013.
The apartment buildings, which were the most important entity in the real estate industry in 2011, seem to be falling out of favour. CMHC has estimated an 8% fall in apartment housing starts in 2013.
The increased demand of single homes can also be attributed to another resource fairly new to the area – mining. The new abundance found in this industry has pushed the average per capita income higher; and is now substantially more than the required income to take out a mortgage. All of these factors combined contribute to a high demand of homes in the market.
Discussion and Conclusion
Diagram courtesy CMHC
The above diagram clearly illustrates the trend in single starts that largely began in the year 2000. Though single starts were consistently on the rise from 2000 to 2004, they suffered a minor decline in 2005 and 2006. Surprisingly in 2007, the year the recession hit, there was a small increase in the number of single detached homes, and this was followed by a slow but consistent couple of years. The year 2012 was second only to 2004 when comparing single starts activity, while 2011 showed a slight decline.
From this data it can be concluded that the single starts market in Thunder Bay has been resilient. The highs have not been followed by sudden slumps and the overall trend has been positive. The forecasts for late 2012 and early 2013 also indicate that the market for single starts will rise steadily. The forecasts are based on a number of factors; however the most important are the high in-migration trend, the increase in mining related jobs, and the overall state of the local economy.
Diagram courtesy CMHC
While it would be natural to assume that with the current and projected increase in demand, resellers are bound to benefit, CMHC reports that the reselling trend in Thunder Bay is lower than it has been in the past. This is largely due to the fact that home owners are not looking to retire to another city.
The above CMHC diagram indicates that reselling activity was highest during 2008, which was also the time when the global financial crisis was affecting all industries. The reselling trend may very well be associated with that economic uncertainty, but whatever the cause, the high demand for housing coupled with the low propensity to reselling will result in increased property prices throughout Thunder Bay.
The need for housing could be fulfilled by high density rental apartments, but the construction trends indicate that such activity is not occurring at the moment. For the near future, condominiums will make up the largest percentage of demand.
The CMHC has forecasted that mortgage rates will stay remain anywhere between 3.1 to 3.6 percent on one year posted mortgage for the rest of 2012. For a five year posted mortgage the forecasted figures are 5.0 to 5.4 percent. With these stable mortgage rates, it is predicted that rental activity will be low and most of the skilled migrants with qualifying salaries will buy property rather than rent. For investors, this is the right time to get in and start construction – especially in the markets of single detached homes and condominiums.
