The real estate market in central Alberta in February is strong.  Red Deer, Blackfalds, Sylvan Lake and Lacombe sales are up noticeably from the same period in January while Ponoka is keeping pace.  The number of listings is also up slightly, but the gap between supply and demand has narrowed.

If we assume that the market is going to continue at its current pace, it would be easy to predict a listing shortage, stronger sales and inflating prices for the rest of the year.  That forecast may be premature until we see what the provincial budget has in store and whether the US approves the Keystone pipeline.

The differential between world oil prices and what we sell our oil for in Alberta has created a shortfall of $6 billion in government revenue and the way the government reacts to that in the budget on March 8^th could have an impact on the housing market.  Approval for the Keystone pipeline would generate optimism and the pace that the oil sands develop.  That approval would be huge for Alberta in every way.

According to the article below, it appears that the construction industry is very cautious going forward, which is a good thing.

Housing’s delicate balance – Todd Hirsch Senior Economist, ATB Financial

Last Friday, Canada Mortgage and Housing Corp. released new data on housing construction across the country. In Alberta, the monthly number was a bit disappointing. However, a longer-term vantage point can offer a more encouraging perspective.

In January, home builders started construction on 29,366 houses across all areas of Alberta (seasonally adjusted and at an annualized rate). That’s the second month in a row in which housing starts had fallen, and one of the lowest totals over the last 18 months. There’s no question the pace of home construction has moderated. Indeed, starts could slow a bit more in the coming months given the economic headwinds the province is starting to experience.

Still, the January housing starts remain above the five-year average. And given the steady and moderate increase in the price of new homes, the market appears to be in relatively good balance.

During the boom years of 2006 and 2007, when housing starts were above 40,000 annually, there was actually a surplus of homes being built. That led to a glut of properties during the 2009-10 recession, and housing starts plummeted (see graph).

This time around, however, home builders appear to be more constrained; fewer homes are being built on the speculation of buyers (“spec” homes). That should leave the new home market in reasonably good shape if the economy continues to slow in 2013. Fewer excess homes on the market will help support prices and maintain balance.

There was one buyer for every three homes for sale in Red Deer in January.  That puts us firmly into Seller’s market territory.  The reason is likely that buyers are entering the market before spring inventories have a chance to establish.

Sales are typically slow in January and February and pick up in the spring along with the number of active listings.  This year, the Buyers are out early, probably because the rental market is experiencing low vacancy rates and rising rents and low interest rates are making home buying an attractive option.

As always, there are reasons to be concerned and there are reasons to be optimistic.  It seems Albertans are choosing to be optimistic.

Behind the Bank’s Change of Tune by Will van ‘t Veld Economist, ATB Financial

Last week, the Bank of Canada stated it is no longer looking at raising interest rates any time soon. That’s because Canadian households now seem to be taking on debt at a slower pace and inflation remains tame.

But the central bank’s outlook shift is also due to a more negative view of Canadian economic growth. And that’s what makes it so noteworthy.

Since the fourth quarter of 2008, Canada has averaged an annualized quarterly growth rate of about 2 per cent. Not stellar, but better than most industrialized nations. Household and government spending has led the way, contributing an average of 1.2 and 0.4 per cent, respectively. But these sectors are running out of steam. With debt loads rising, governments and households will be looking closer at their spending.

If you could flip a switch, this would be the perfect time to shift from domestic consumption spending to business investment and export-driven growth. But there is no switch. Investment spending has been a huge boost to Western Canada, where real business investment is up 44 per cent since 2009, but elsewhere in the country business hasn’t been so eager.

Excluding B.C., Alberta and Saskatchewan, business investment in Canada has rebounded 20 per cent, putting real business investment at near 2008 levels.

As for Canada’s trade situation, it’s not great.  Between manufacturers getting hammered and oil producers getting a reduced price, Canada’s net trade position has been a significant drag on growth.

There is hope the economy is in a transition. A rebounding U.S. economy will likely be good news for exports and investment growth and pipeline developments will likely reduce the price differential. If this doesn’t play out, the Bank of Canada might stay on the sidelines for even longer than any time soon.