The Hamilton Commercial & Residential Markets – First Quarter 2018

The First Quarter of 2018 has been a busy one, with residential real estate sale prices returning to more stable figures than what we saw this time last year. While this means that sellers may have to think more seriously about make the decision to sell, last year’s tumultuous spring market made for often-considered outrageous purchase prices, in both the commercial and residential Hamilton markets. In this check-in, we’ll be examining the change in the market since this time last year, as well as reflect on the Hamilton real estate sector and economy over the course of 2018’s first quarter. We’ll begin by examining the Hamilton City of Hamilton economic development indicators for the year’s first quarter, followed by a look at the city’s residential and commercial markets, respectively.

Hamilton Economic Development Indicators

In order to best begin our discussion of the Hamilton real estate markets, we’ll be taking a quick look at some of the economic indicators the City of Hamilton uses to evaluate the city’s economic health and viability and determine policy and planning criteria moving forward. These criteria are 1) Building Permits; 2) Unemployment Rates; 3) CMHC Housing Starts and 4) Number of Residential Real Estate Sales.

The first quarter of 2018 saw a healthy amount of building permit expenditures, but still indicated a substantial drop from the record high amounts of 2017. Q1 2018 for instance saw a total building permit value of $251,638,748 (just over $250 million), while Q1 2017 saw total building permit values reach nearly $350 million. This is unsurprising given the stark differences between the 2017 and 2018 real estate markets. Despite the sharp drop in building permit values, Q1 2018 remains in line with previous years’ first quarter building permit values, with these traditionally sitting around the $250-260 million mark. That is to say, it’s not that 2018’s values are below average, but that 2017’s values were above average. See below for the Q1 2017 and Q1 2018 comparison.

Building Permit Values Q1 2018 Q1 2017 Q1 2016 Q1 2015 Q1 2014
Commercial $22,361,715 $17,495,257 $23,317,316 $27,558,253 $75,851,447
Industrial $10,741,151 $22,566,400 $5,055,200 $38,105,130 $19,861,688
Government /Institutional $27,177,000 $49,827,748 $14,472,250 $11,453,625 $4,511,091
Residential $188,805,329 $247,862,564 $219,779,484 $187,356,583 $157,630,899
Miscellaneous $2,553,553 $8,053,277 $3,058,438 $4,113,526 $3,763,007
Total $251,638,748 $345,805,246 $265,682,688 $268,587,117 $261,618,131

 

While building permit values have decreased, so too has Hamilton’s unemployment rate. Over the course of the first quarter of 2018, the city’s unemployment has increased gradually from 4.7% to 5.3%. This is still down substantially from last year, when unemployment rate for Hamilton sat at 5.9% for the duration of the quarter. In the case of both years’ first quarters, the city’s unemployment rate sits below the provincial and national average. See below for the full chart.

Unemployment Rates Q1 2018 Q1 2017
Region Jan-18 Feb-18 Mar-18 Jan-17 Feb-17 Mar-17
Hamilton 4.7% 5.3% 5.3% 5.9% 5.9% 5.9%
Ontario 5.5% 5.5% 5.5% 6.3% 6.3% 6.3%
Canada 5.8% 5.8% 5.8% 6.8% 6.7% 6.7%


Moving on to a separate metric in the form of housing starts as measured by the Canadian Mortgage and Housing Corporation, Q1 2018 is similarly down from Q1 2017. This, like total value of building permits, can largely be attributed to the mid-2017 decline in the region’s real estate market.

CMHC Housing Starts Q1 2018 Q1 2017 Q1 2016 Q1 2015 Q1 2014
Hamilton 223 576 472 140 379


Finally, as a way to begin our discussion of Hamilton real estate market in earnest, let us take a quick look at one final economic indicator as provided by Economic Development at the City of Hamilton – number of residential real estate sales.

RAHB Sales – Hamilton Residential Q1 2018 Q1 2017 Q1 2016 Q1 2015 Q1 2014
Hamilton 1,389 2,185 1,844 1,673 1,487


As can be seen above, number of sales, like housing starts and building permit values before, demonstrated a significant, gradual incline toward Q1 2017 with a sharp decline noted in Q1 2018. This is unsurprising, as number of sales is one metric that can be most affected by outside change and external factors, such as those mentioned previously. For more information on the Hamilton residential market and how it’s changed over the course of the first quarter of 2018, check out the section below!

The Hamilton Residential Market

The last year of the Hamilton residential market has been a very busy one. As you may recall, this time last year, house prices had reached a record high with the average sale price reaching $543,333 in May 2017. March 2017 saw the largest jump in sale price in recent memory with average price increasing by 27.84% from March 16 to March 2017. Days on market decreased while sales, active listings, and new listings all increased. Then in June 2017 we saw a massive shift as a result of several factors, including announcements made the month prior by the Government of Ontario concerning several measures designed to curb the hot housing market, including a tax on foreign buyers, expanded rent controls, and legislation that would allow Ontario cities to tax vacant homes. These factors caused a significant cooling effect on the GTA market, and Hamilton, while not technically part of the GTA, was not immune to its effects.

Since the June 2017 (and subsequent, but smaller decline in July 2017), the Hamilton residential market has struggled to return to those original average sale prices. March 2018, for instance, saw a decline in average sale price of -7.53% from March 2017, a stark change from the previous year’s massive increase. The news is not all bad, however, as Hamilton’s average sale price has remained more-or-less static since January 2018, with the average sale price at the time sitting at $480,523, increasing to nearly $500,000 in February 2018, and then sliding to nearly the exact previous month’s level with the March 2018 average sale price landing at $477,130.

While average sale price has not changed much over the course of the quarter, days on market (DOM), active listings, and new listings have all improved. Days on market decreased from 45 in January 2018 to 26 in March, while new listings increased from 610 in January 2018 to 969 in March 2018.

The Hamilton Commercial Market

The Hamilton commercial market has undergone changes similar to those of the residential market. Further, the economic development indicators mentioned above also have a significant relationship with commercial transactions. Rents for instance have increased substantially over the last year. Whether there has been movement in rental rates over the course of the quarter is difficult to assess as the data is difficult to acquire, however we are more than confident in our own experience to give you, our clients and readers, insight into current achievable rents. Market rent (or average rent), is significantly different from achievable rent – market rent is simply the average rent we see within the Hamilton residential rental market. The government of Ontario consolidates year-end market rent for each Ontario municipality and they are laid out below.

Market Rent Bachelor 1-Bedroom 2-Bedroom 3-Bedroom Average
City of Hamilton $632 $845 $1,027 $1,160 $938


These however create a bit of a skewed picture for a few reasons. First, this is the average rent that tenants are currently paying across the city, regardless of the unit’s age, location, or amenities. Many of our clients ask us what rent may be achievable for a given area, and this may differ widely across the city. As a case study, let us take a quick look at what rents may be
achievable at newly renovated units near the Hamilton General Hospital, broken down by size. These are therefore assuming average location, no amenities, and recent renovation.

Achievable Rent Bachelor 1-Bedroom 2-Bedroom 3-Bedroom Average
City of Hamilton – Landsdale & North End Neighbourhoods $800 – $900 $1,000 – $1,100 $1,200 – $1,300 $1,400 – $1,500 N/A


Discounting
several factors, one can likely plausibly depend on a 20%-25% increase over average market rent when calculating achievable rent for a given area when planning renovations of their multi-family property.

Another common, important metric when evaluating the viability of a commercial property (primarily multi-family or mixed use property) is price per unit, commonly known as price per door. For several years, price per unit hovered around $100,000, depending on the state, size, and location of said units, but it was generally accepted a viable metric. Since approximately 2015, price per unit has steadily climbed from $100,000 per door. One transaction that took place on the Hamilton Mountain in February 2018, for instance, saw a price per unit of nearly $190,000. This is significant growth in a very short period. Average price per door can arguably therefore increase dramatically more quickly than average residential sale price.  This is due to several factors, such as the common practice of purchasing a vacant multi-residential building, renovating the units, signing tenants, then selling the property, all in a span of a few years. The price per unit of two transactions on the exact same property can therefore vary widely.

Overall, while there is a significant correlation between the performances of the Hamilton commercial and residential real estate markets, it could be argued that the commercial market is more insulated against external changes. When the GTA and regional markets experienced the slowdown of the summer 2017 season, both the commercial and residential markets were impacted. Much of the impact however was largely based on perception and consumers choosing to take a “wait-and-see” approach to the legislation announced by the Government of Ontario. This speculation was arguably fueled by news stories and blog posts accentuating the changes, creating something of a self-fulfilling prophecy. This cycle of announcement → brief market cooling → wait-and-see → further market cooling → wait-and-see, etc. persisted for several months, and it’s only recently that the Hamilton and GTA residential markets have begun to return to early 2017 levels. Meanwhile, the Hamilton commercial market has remained relatively consistently strong during this period with prices per unit of multi-residential properties continuing to rise.

Concluding Thoughts

What we’ve seen over the duration of the first quarter of 2018 is a gradual return to 2017 levels. While this is not the case for average sale price for residential sales, other residential metrics have improved over the course of the quarter, such as days on market, number of listings, and number of sales. Building permit values have remained consistent with past years, though are still down from the peak of 2017 levels. Commercial metrics, such as price per unit, have remained consistently strong since last year with multi-residential properties selling for between $120,000 and $180,000 per unit, depending on state, location, and amenities of the building. Based only on multi-residential transactions that have closed during Q1 2018, the average price per unit sits at approximately $145,000. This can vary quarter to quarter based on the transactions that have completed or taken place during that period, but we at the Doyle Team find that value to be entirely in line with past periods based on our knowledge of recent transactions.

If you are ever curious about individual metrics or are looking for more specific insight into the residential or commercial real estate markets, or how they may be related to Hamilton economic indicators, contact us today! We are Your Real Estate Professionals and consider it our duty to keep your informed and up to date on the latest market trends.

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