The Red Deer market continues to forge ahead with November sales keeping pace with September and October.  In the meantime, the active listing count is still dropping, making it tougher for buyers to find that perfect home.  If the trend to fewer active listings and strong sales continues, prices will start to adjust.

There is lots of optimism that two new pipelines to take oil to eastern Canada and the US are imminent, natural gas prices are rising and it looks like the future is bright for Alberta.

Small is Beautiful – Todd Hirsch, Senior Economist, ATB Financial – Small- and medium-sized businesses (SMEs) are the heart and soul of many communities throughout the country. In fact, nearly 95 per cent of companies in Canada are considered small or medium in size. Given that, it’s a good thing that their business optimism is turning higher.

According to a survey conducted monthly by the Canadian Federation of Independent Business, the index of confidence among SMEs in Alberta rose to 72.2—more than a full point higher than the reading of 71.1 in September. On balance, Alberta businesses are more optimistic than the Canadian average, but the national figure did rise by a larger amount in October (from 62.0 to 65.6). Businesses in Newfoundland and Labrador continue to be the most optimistic, followed by Alberta and Saskatchewan.

Measured on a scale of 0 to 100, an index level above 50 means owners expecting their businesses’ performance to be stronger in the next year outnumber those expecting weaker performance. According to past results, index levels normally range between 65 and 70 when the economy is growing at its potential.

The high level of optimism in Alberta is attributable to relative stability in the oil and gas sector, as well as the other supporting industries throughout the province such as agriculture and forestry. A significant number of SMEs in Alberta are in the construction and energy sectors, and with those performing well at the moment, it is little wonder that independent entrepreneurs are seeing good days ahead.

Alberta’s housing starts hanging in, Todd Hirsch, Senior Economist, ATB Financial – Despite the anxieties in Europe, uncertainty in the U.S., and a faltering economy in other parts of Canada, Alberta remains remarkably stable. The province’s balanced housing market has been one of the most convincing indicators of that.

Construction got started on 33,127 new homes in Alberta last month (adjusted for seasonality). That is essentially unchanged from September. Over the first ten months of 2012, total housing starts are higher by 33 per cent over the same ten months of last year—a significant increase given the slowing of the housing market elsewhere in the country.

Nationally, housing starts slipped to 204,107 units, down from 223,995 in September—lower than the consensus forecast of 213,000. However, Alberta’s housing market has held up better than most other provinces. The number of starts in October is only slightly below the 10-year average for the province (34,800). And if you omit 2006 and 2007 from the calculation—the two record-setting years for housing starts—last month’s figure is actually higher than average (31,300).  A strong labour market, high average wages, and surging consumer sentiment have helped keep Alberta’s housing market on its feet. But almost most importantly, the province is once again a strong attractor of inter-provincial migrants—many of them moving to Alberta to find work. On a net basis, over 20,200 people from other provinces have moved to Wild Rose Country over the first half of 2012. That alone provides some strong incentive for home builders to keep swinging their hammers.

This is the time of year when the market goes into a slower “winter” mode.  In spite of the sudden wintery weather, October sales were strong, keeping pace with September and up from last October.  In the meantime, the number of active listings has fallen to its lowest level in years.  Strong sales combined with a shrinking supply means the market is now in balance – where neither buyer or seller has an advantage.  A balanced market is ideal, offering buyers an ample supply of homes to satisfy their needs, and sellers an opportunity to find a buyer willing to pay a fair price.  A balanced market means prices should keep pace with inflation only.

We have been conditioned to believe that strong house price inflation is a good thing, but the only winners when that happens are the banks.  Let’s face it, house prices in any market will rise and fall in unison.  It’s a mistake to think that if my house goes up 10% in value, I can sell it and move up with the profit.  Actually, the house I will buy has also gone up 10%, and I will have to finance the difference.  Here’s a tip:  Buy bank shares.

Comparing Canada with pre-housing meltdown U.S. shows all ‘we have to fear is fear itself’ Tara Perkins – Globe & Mail – Oct 31/12

Two well-known economists suggest the angst about Canadian consumer debt is overdone.  And, one says in a new report, Canadians need not fear a U.S.style real estate meltdown.

The comments by deputy chief economist Benjamin Tal of Canadian Imperial Bank of Commerce and chief economist David Rosenberg of Gluskin Sheff + Associates come amid repeated warnings for the Bank of Canada that consumers must get a handle on their record debt burden as the country heads toward an inevitable increase in interest rates.

The central bank went so far last week as to warn that it could raise rates if they don’t, though that appears unlikely at this point.  The key debt-to-income measure has been particularly worrisome, in that it has now surpassed the level at which the United States hurtled into the real estate crash.

But, Mr. Tal said Tuesday, less attention should be paid to the level, and more to the speed at which it has been rising. Several countries have had higher ratios with a meltdown, he suggested, adding that in the last three years that measure has climbed at half the speed than that of the precrash era in the United States, making it appear less threatening.

He also stressed that the quality of mortgages in Canada, as determined in large part by the credit scores of borrowers, is much better.   One-third of U.S. mortgages taken out in the U.S. in 2005 and 2006 were in negative equity positions before house prices dropped, and at least half of the mortgages had less than 5 per cent equity, making them extremely vulnerable to even a small drop in prices. In Canada, only 15 to 20 per cent of new mortgages have less than 15 per cent equity, and the negative equity position is nil, he said.

In addition, Canadian borrowers have begun reducing their exposure to rising interest rates by choosing fixed-rate mortgages over variable. The opposite occurred in the U.S., where adjustable rate mortgages remained popular until the bitter end.

Mr. Rosenberg also talked down the issue, having heard “all of the horror stories” of late. Among his points: Disposable income in Canada is “distorted” against that in the U.S. because Canadians pay for health care from taxes, household debt relative to assets is below peak levels, Canadians have more equity in their houses, wage growth in Canada is double that of the U.S., and debt-servicing abilities are “hardly being impaired.”

Mr. Tal does believe house prices in Canada will probably fall over the next two years, but there are factors to lessen the blow, leading to a soft landing. That’s what policy makers are hoping for.  Those factors include a lower degree of speculation in the Canadian market, and higher quality mortgages…..

Red Deer sales were up slightly over August’s while our active listing inventory slipped slightly.  The ratio between Supply and Demand for homes in Red Deer is just under the 30% mark which means we are close to being in balance – where neither the Seller or Buyer has an advantage.

The overall central Alberta market has improved over August’s.  The market has recovered from a slower August that we suspected may have been caused by changes to the mortgage rules.  The stronger September market may have been caused by tenants turned first time buyers escaping rising rents and a shortage of rental accommodations. The number of active listings is generally lower than last year, bringing the sales to listing ratio closer to balance, but still in Buyer’s market territory in most markets.

That means that prices will remain stable for the near future and won’t increase until that ratio gets well above 25%.  The possibility that could happen in the next few months seems very real, based on the Alberta population growth information below.  The stabilizing factor is new housing.  As people move to Alberta, new houses are built and as long as the construction industry can keep up, housing supply and demand will remain in balance.

Excerpts from Alberta Treasury Branch – Weekly Economic Bulletin – Sept 28/2012

Alberta bound – Statistics Canada came out with population estimates this week for the period of June 2011 to 2012, showing
that Canada’s population hit 34.9 million people. This was mostly thanks to immigration, at 260,000 people. For the past decade, Canada has been accepting between 240,000 and 270,000 immigrants annually, a rate that is the main reason the population is increasing. The natural rate of population growth (births minus deaths) has been in the range of 130,000 to 140,000 over the same period.

Alberta’s population continues to not only grow the fastest in the nation, increasing 2.5 per cent (the national average was 1.1 per cent), but also remains the youngest, with a median age of 36.1 years (the national average age is 40). As well, interprovincial migration picked up over the period, with 28,000 Canadians relocating to Alberta. International migration also picked up substantially, hitting a record 34,500 individuals.

And Alberta inbound – Given that Ontario is by far the largest province in Canada by population, it’s not surprising that it also
provides the bulk of Alberta’s inter-provincial migrants. Last year 10,700 Ontarians got on the Trans-Canada highway and headed west. In contrast, net-migration from Saskatchewan, historically a major source of labour in Alberta, was very low, at 454 individuals.

Contrary to popular belief, neither Atlantic Canada nor Saskatchewan has contributed the most to Alberta’s net gain in population. Over the past decade Alberta’s net balance of population with Ontario increased 91,000, which is more than the number of the combined increase from Atlantic Canada and Saskatchewan (at 52,500 and 24,600, respectively).

Regardless of an individual’s place of origin, the human pipeline to Alberta represents good news for the local real estate markets, as these new Albertans need to be housed, and for the provincial labour market, as it keeps things from overheating too quickly.

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.

Month to date July sales in Sylvan Lake just about the same as the same period in July in 2011 and also the same as the first two weeks in June, while Red Deer sales have slowed compared to last month and last year.

It’s hard to understand why local markets can be so different, but it is possible that the smaller centres are finally catching up a little with Red Deer.

The world economic situation seems to have stabilized slightly in the past few weeks and the price of oil has held just above $80.  That is good news for central Alberta and as long as those indicators remain stable, we expect our real estate markets to be stable as well.  The Red Deer and Blackfalds markets still favour sellers and the Lacombe, Sylvan Lake and Ponoka markets favour buyers.

Excerpts from ATB Financial Weekly Economic Bulletin – July 13, 2012

Mixed housing market signals – Regulatory changes geared at cooling the housing market came into effect this week—but data on how much the market was already cooling in recent months, is providing mixed signals.

Last week sales data showed a precipitous drop in June, while this week construction data came in relatively strong, with strong housing starts and new home price data.

Year-over-year the new home price index rose 2.4 per cent in May. This was driven mostly by Toronto, where prices rose 5.5 per cent (in Alberta new home prices were flat).

Housing starts data for June was also surprisingly strong coming in at a seasonally adjusted annual rate of 222,700 units—that’s about 5 thousand more than May’s number.

Total starts in Alberta were 31,100 in June, steady from starts in May.  Starts in our province’s two major cities made significant jumps, with Calgary numbers 65 per cent higher than in 2011 and 46 per cent higher in Edmonton.

2011 Natural Gas – Anyone who follows the natural gas market would probably like to forget 2011. For that matter, the first half of 2012 as well. The folks at the Energy Information Administration (EIA) aren’t in the business of forgetting however, publishing a year-end review for natural gas in 2011 this week.

The EIA charts a disastrous year for 2011 in which average prices dropped to $3.98/MMbtu from 2010’s $4.37/MMbtu.  This was due to record high production and storage levels, which pushed the price even lower through 2012.  Why did production keep rising despite rock bottom prices? The EIA attributes this not only to the cheap abundance of shale gas, but the desire of drillers to drill for crude and other projects that produced natural gas as a by-product.

Market Update – The local real estate market pretty much reflects the provincial outlook provided by CMHC.  The Red Deer market continues to be strong, although not as busy as earlier in the spring.  As always, activity is strongest at the low to middle end of the price spectrum.  We have seen activity slow most dramatically from spring in properties priced over $500,000 where the sales to listing ratio is less than 10%.  That means that less than one out of ten homes for sale in that price range will sell in a month.  The Blackfalds market is a reflection of the Red Deer market with strong sales and a high sales to listing ratio.

Sales in Lacombe, Sylvan Lake and Ponoka are also stronger than last year, but the ratio between listings and sales still favours buyers.

Long term predictions for the market would be dangerous.  Obviously the central Alberta market is heavily dependent on a strong energy sector.  A slower world economy demands less energy and less demand equates to lower prices.  If world oil prices drop below $80/barrel, there is concern that our local energy sector will slow down.  On a positive note, the US economy seems to be gaining traction and the US is our largest trading partner.  Stronger demand there may offset a slower world economy.

Our best guess for the near term is a stable market, with adequate supply (or excess) supply in most markets.  Under the circumstances, we don’t expect to see much price appreciation, but do expect very stable prices.

Excerpts from CMHC Housing Outlook – 2^nd Quarter 2012

Rising employment, population gains, and low mortgage rates will help propel resale transactions in 2012 in the Prairies to 85,200 units, up almost seven per cent from 2011. MLS® sales in Alberta will rise by over seven per cent to 57,600 units in 2012, then increase to 59,200 units in 2013…..

The Prairie’s average MLS® price will increase by near three per cent in 2012 to about $327,000.  A similar level of growth will raise the average price toward $337,000 in 2013. Over half of Alberta’s major markets remain in buyers’ market conditions, holding back price growth….

The average MLS® price in Alberta is projected to rise by about two per cent to $360,900 in 2012. With improved market balance in 2013, Alberta’s average resale price will rise by near three per cent to $371,500.

In Alberta, competition from the resale market and rising inventory levels caused builders to reduce single-detached starts in 2011.  Improving economic and demographic conditions are now lifting housing demand and builders are responding by increasing production. In 2012, single-detached starts are projected to rise by 15 per cent to 17,500 units.

The central Alberta real estate market is holding up well but not booming as might have been predicted based on February activity.  Sales in the first half of April are up slightly compared to the same time last year and inventories are down in most markets.  Inventories have surprised us a little staying higher than we thought they might, especially in the lower price ranges.  Those stable inventories and demand dampened maybe a little by the weather have kept prices stable as well.  Very low interest rates still make this a great time to buy.

Alberta Treasury Branches – Weekly Update – Apr. 12/2002

New Home Sale prices steady – Since coming down after the boom the price of new homes in Alberta has been relatively flat. In fact, since 2009 the provincial average new home price has actually dropped 0.5%. Prices move quickly when there’s a sudden disjuncture between supply and demand and this simply hasn’t happened in Alberta in recent years.

Elsewhere in the country builders have been able to raise their asking price. In Toronto the new home price index has risen 10.5% over the past three years. Saskatchewan has also seen new home prices increase rather substantially over the past three years, up 9.3%.

Which way is the U.S. Economy going?   Depending on what day you opened the paper the American economy was either strengthening or stagnating. Earlier in the week the Federal Reserve released the results of its beige book. The beige book is a compilation of interviews that are conducted around the country to give a qualitative view of how key industries are doing. The results of the interviews were uniformly positive, with most interviews expanding and hiring at a moderate pace; the only negative was concern over gas prices. 

Employment concerns continued to be the downer this week, after last week it was revealed that the economy was adding jobs at a substantially reduced pace. This week it was reported that unemployment benefit claims had risen to a seasonally adjusted 380,000; this was 13,000 higher than the last report, and an unexpected reversal, after having declined for most of the year.

Lastly, Americans have long consumed more than they produced and it’s not going to change overnight, but trade numbers show that the balance is narrowing, going from $52.5 billion in January to a deficit of $46 billion in February.

The trade numbers were actually better than expected, as there was concern that the situation in Europe would have weighed on exports (the EU is the destination of over 20% of U.S. goods). Also helping the trade balance was a reduction in oil imports, as fewer imports are required with U.S. energy production increasing dramatically.

The central Alberta housing market is healthy and showing signs of further improvement as the world and U.S. economies continue to strengthen.  Very simply, oil prices dictate our future.  Strong demand for oil keeps prices high and drives demand for the shale oil along the foothills and the oil sands.

The provincial government is predicting $5 billion surpluses by 2015 for a province that already has the lowest taxes, best health care system and no debt.  People from other provinces are once again coming to Alberta in large numbers and they all need places to live, which explains our suddenly low vacancy rates and rising rents.

The future certainly seems bright for now – there is still good availability of homes, house prices are affordable, interest rates are low.  We expect the current trend to continue for the short term, but expect that all markets will swing into seller’s territory in the next few months and house prices will slowly rise in response stronger demand and lower supply.

Red Deer – Listing inventories are down from a year ago, but up from a month ago.  Sales in March were up very slightly over March 2011 and year to date sales are up 9.3% over last year.  The current listing to sales ratio is well into seller`s market territory at just under 38%.  That means 4 out of 10 homes listed in Red Deer sold last month.

The Red Deer market is typically the first to experience increases in sales, but the other central Alberta markets are sure to follow suit as good product becomes more scarce and more expensive in Red Deer.   Very tight vacancy rates for Red Deer rentals is certainly contributing to the increase in sales this year.

Lacombe – Lacombe year to date sales are up more than 30% over the same period in 2011, but inventories are more than adequate at this point to handle the demand.  Only slightly more than 1 in 10 houses for sale in Lacombe sold in March, which points to stable prices until that ratio changes.  Inventories are slightly higher than this time last year making Lacombe a good option for buyers.

Sylvan Lake – year to date sales are also up more than 30% but inventory levels equal to last year are keeping the sales to listing ratio at 1 in 10 homes sold in March.  The number of properties for sale in Sylvan Lake is skewed a little by the inclusion of recreation and lake properties, but there is still a good supply of homes available in all markets.  Sylvan Lake also represents good opportunities for home buyers.

Ponoka – affordability has been a key factor in the Ponoka market and buyers are coming to play with year to date sales more than double the same period as last year.  Listing inventories are shrinking slightly and two out of ten homes for sale sold last month.  Good starter product in Ponoka is getting scarce and that market is tightening up at the low end of the price spectrum.  We expect to see prices starting to catch up with the rest of the central Alberta market.

Blackfalds – this market is most closely following the Red Deer market with more than 3 out of 10 homes selling in March.  Inventory levels are quite low and year to date sales are up 35% over 2011.  Starter inventory is still plentiful but could soon shrink as people who can’t find what they are looking for in Red Deer start to look outside the city at the closest point available.

Sales and listing activity continue their positive track this month as we move into the busy spring market.  Active listings in Red Deer are down more than 30% from the same time last year while sales are up 21%.  The current sales to listing ratio so far this month is 40%.  That means that 4 out of 10 homes on the market will sell this month.  CMHA defines a Seller’s market as one where 3 out of 10 homes sell every month.  When we reach a 40% sales to listing ratio, prices are starting to firm up.  We have seen evidence of firming prices and a strong Seller’s market recently in the form of multiple offers on the same home and occasional sales over the listed price.

Where are we going from here?  It appears that the world and US economies are weak but not faltering.  Oil prices remain well over $100/barrel.  Employment In central Alberta is growing.  So, our local real estate market will continue to strengthen.  Prices are on the way up and competition for well priced, well presented homes will be strong.

Western Employers to Ramp-up Hiring – Will van ‘t Veld Economist, ATB Financial

The national unemployment rate has been creeping up lately, but a look at hiring intentions over the coming months indicates that employers are optimistic that they will be expanding payrolls—especially in Western Canada.

The Manpower Corporation is an employee staffing corporation with operations around the world. It conducts a quarterly survey, asking respondents how they see employment changing at their firm over the next three months. The net employment outlook is then computed as the difference between those firms that will likely be adding employees versus those that will be looking to reduce payrolls.

Nationally the seasonally adjusted net employment outlook stood at 13% for the second quarter of 2012, which is exactly where it stood a year ago. Construction and mining look to be the industries that will be doing the most hiring; the two industries that will barely increase hiring will be public administration and education.

Ontario has been struggling lately and hiring intentions there remain below the national average, although they are still positive. The non-seasonally adjusted (provincial numbers aren’t seasonally adjusted) net employment figure was 13% versus 16% nationally. On the more positive side, net hiring intentions in the beleaguered manufacturing sector look relatively strong, at 18%.

Unsurprisingly, the results out of Western Canada were by far the strongest, with net hiring intentions of 19%. Respondents in the West foresee a fierce hiring season in the construction (34%), non-durable manufacturing (29%) and mining (29%) industries. It won’t be rosy for everyone, however, with hiring intentions in the education (2%) and the public administration (4%) looking very tepid.

There is no doubt that the rental vacancy rate in central Alberta is down, and like house prices, rental rates rise when supply decreases and demand increases.  The other thing that low vacancy rates and higher rents does, is encourage renters to buy homes.  The current environment of low interest rates and a decent supply of starter homes makes this an ideal time for that scenario. 

Rents on the Rise?  Todd Hirsch, Senior Economist, ATB Financial 

While the housing market tends to steal the show when it comes to economic indicators, the apartment rental market still provides accommodation for hundreds of thousands of Albertans. Apartment rents have remained fairly steady over the past few years, but with another economic boom underway in Alberta, that could change. 

According to the Consumer Price Index, rental accommodation in the province stood at an index level of 123.1 in January 2012 (with 2002=100). 

The graph below shows the steep climb in rental rates through the boom years of 2006 and 2007, when at the time apartment vacancies were extremely low and landowners could command higher rents. In those years, thousands of Canadians from other parts of the country were flooding into Alberta for work. And as inter-provincial and international migrants tend to rent when they first arrive, they strongly influenced the rental market. 

When Alberta slammed on the economic brakes in 2008, apartment vacancies rose and rents levelled off. In fact, on a provincial average, rents actually decreased somewhat through 2010. The province suffered a couple of quarters of net out migration to other provinces. 

Now, however, Alberta has regained its traditional position of a destination province, largely due to the strong labour market. And as a result, apartment rents have started to creep higher in the past few quarters. That could be a trend in the coming months and years if the economy continues to perform well.