A recent news article suggested that home sales this summer have been impacted by the changes to mortgage rules, specifically lowering the maximum amortization from 30 years to 25.  The article quoted the Finance Minister as saying he was no longer concerned about a housing bubble. Sales of starter homes in Red Deer were certainly slower in August and we  suspected that the mortgage changes had impacted our market.  But, it seems there is another pressure out there that may have an even stronger impact.  Starter sales to date in September seem to have recovered likely because of the strong population growth discussed below which has created a heated rental market and the inflating rents that go with that.

The rental market is always the first to feel the pressure from population growth.  Many people moving to Alberta have left unsold homes behind, or won’t buy a home until they are sure they want to stay, or can’t buy a home until they’ve been in their jobs for a while.

Tenants who have been here and renting for a while and experience the rent increases are the ones to react.  As soon as rents equal or exceed mortgage payments, they become motivated to look at home ownership.

Our lives, our homes – Will Van’t Veld, ATB Economics

In the river of information on the residential housing market that flows by every day, there comes, once every five years, the big houseboat of data that makes for interesting watching.

It’s Canada’s Census.

Statistics Canada releases the census results in stages, and on Wednesday came data on families, households and marital status. Nationally, the number of private households increased by 7.1 per cent between the census periods, 2006-2011. And, yes, Alberta’s growth rate of 10.7 per cent was the fastest in the nation, corresponding to an annual average of 30,000 new households. That’s almost 16 per cent of the 189,000 new households added nationally.

Every new household needs a home and back in February, the agency released data on the size of the private housing stock. From that, we know that the housing stock increased on
average by 34,000 units in Alberta and by 199,000 nationally.

Clearly, construction between the latest periods was more than adequate to accommodate demographic demand, with the difference indicating that more families have second homes (there’s also likely more vacant homes out there). Housing is cyclical and some of the current strength likely compensates for under building in the previous decade, but clearly the cycle has been on the upswing for quite a while now.

Another interesting revelation from the data was how the structure of families is changing. There was a jump in growth of households of couples without children (up 12.8 per cent in Alberta) and people living alone (up 11 per cent), explaining the surge in preference for condos.

Red Deer sales in August were down almost 18% from July.  Sales in the starter market (up to $300,000) were down 33% which is likely the result of tightened mortgage qualifying rules imposed earlier this year.  The rental market is showing signs of strain with very low vacancy rates and rapidly increasing rents.  That pressure is likely to translate into more started activity going into the fall.

On the other hand, sales at the higher end of the price spectrum ($400,000 +) have been much stronger this summer than last.  Buyers for those homes are probably less impacted by the mortgage rule changes and are finding good value for their money.

Generally, the market is much slower this summer than it was in the spring with sales to listing ratios trending back to buyer advantage territory.  More building starts this year have helped keep demand from overwhelming supply as in-migration into Alberta from other provinces continues to be strong.

Excerpts from Aug. 31/12 ATB Financial Weekly Economic Bulletin by Todd Hirsch & Will Van’t Veld

Canadian GDP chugs higher – One of the most reliable and closely watched indicators of economic activity is the quarterly national accounts, which measures the gross domestic product. On this final day of August, we learn that the Canadian economy keeps chugging along—slowly but surely.

The total value of all goods and services produced in the Canadian economy grew by 1.8 per cent in the second quarter of 2012 (adjusted for inflation), according to the latest release from Statistics Canada. That slightly exceeded the 1.6 per cent expansion predicted by a consensus of economists.

Speaking to the media this morning, Canada’s Finance Minister Jim Flaherty said: “We have now witnessed four straight quarters of economic growth. While the growth is modest, it reinforces Canada’s positive economic track relative to other countries. Indeed, Canada continues to have the strongest economic growth of all of the G7 industrialized countries.”

There is no quarterly breakdown available for the provinces, but Alberta’s energy sector may have been one of the contributors to the country’s overall growth. Statistics Canada reports that “oil and gas extraction increased 1.0% in the second quarter, as an increase in crude petroleum production was partly offset by a decrease in natural gas extraction.”   The relatively good news for the economy lifted the Canadian dollar this morning, which was up almost half a cent against the U.S. dollar.

However, the growth will not be strong enough to convince the Bank of Canada to raise interest rates. With very little inflation pressure building, and only modest growth, there will be no appetite building at the Bank to hit the button on rate increases until well into 2013.

U.S. economic update – Economic growth in the United States came in slightly better than expected in the second quarter, at 1.7 per cent. This was down from 2 per cent in the first quarter. Most GDP components were slightly slower in the second quarter, which was expected, but net exports came in more positive and government spending decelerated less than it did in the first quarter.

U.S. housing continues to be a good news story, with the influential Case-Shiller Home Price Index increasing 1.2 per cent on a year-over-year basis in June, the first time the indicator has turned positive since the 2010 home-tax buyer credit. The Case-Shiller index measures the change in home prices that have been sold at least twice.  In other news economic news, U.S. personal consumption expenditures and disposable income for July came in fairly strong, increasing 0.4 and 0.3 per cent, respectively. This was the fastest consumption
expenditures increased in five months. On a less optimistic note, new jobless claims benefits have remained relatively flat, indicating that employment has yet to pick up significantly enough to reduce the unemployment rate.