We’ve just experienced one of the best January’s in recent history.  Sales are up in every market we serve and listing inventories are not increasing the way they usually do at this time of year.

Two key factors are driving the change we’ve experienced over the last few months:

Interest rates – Investors and banks have cash and very few safe places to invest it.  One of those safe places is bonds.  When everyone wants to buy bonds, the yield goes down.  Lower bond yields pushes investors to other options like mortgages.  Several major banks have put mortgages “on sale” this month at rates as low as 2.99% for a five year term.  Rates that low are unprecedented in our history and make buying a home more affordable than ever.  The benefit of low rates will be most effective until home prices start to inflate, which they almost surely will as the gap between supply and demand narrows.

Oil prices – there is estimated to be more than 15 billion barrels of oil trapped in shale along the Alberta foothills that has previously been unavailable using conventional drilling methods.  Now, horizontal drilling and a process called fracking is making an estimated 5 billion of those barrels available and the race is on.  Central Alberta is a major centre for fracking companies who are looking for workers.

Development in the Alberta oil sands is progressing at full speed and will continue to do so as long as oil prices remain above $75/barrel.  The demand for workers far outstrips supply.  Workers are no longer required to live in Ft. McMurray, but are commuting from all over Canada, including central Alberta.

The Alberta oil sands development has also resulted in manufacturing operations in central Alberta that are very busy fabricating equipment and many of the other necessities required for remote operations.  Lots of people in central Alberta are directly employed by the oil sands but never make the trip up there.

The energy industry is very busy creating jobs.  Alberta has the lowest unemployment rate and the highest average weekly wages in Canada.  People are once again moving to Alberta, filling up the available rental accommodations and generating housing demand.  As long as oil prices remain high, that demand will grow.

Forecast – it’s impossible to predict the future, but if the current trend continues, we can expect to see house prices firming up this spring.  Obviously the world economy is tenuous and we will be affected by things that happen in the rest of the world, especially the United States.  It’s hard to believe the US economy will be running on all cylinders any time soon, but there have been some positive growth signs recently that suggest things are getting slightly better.

Economic growth in the US has the potential to drive the value of the Canadian dollar down, which is very good for our provincial government.  A lower Canadian dollar dramatically increases government revenue here.  95% of Alberta exports go to the United States and a stronger economy there, means more jobs and more economic activity.

Therefore, we expect to see a very busy real estate market in central Alberta this spring.

A fragile world economy isn’t having a big an effect in central Alberta yet.  Our market cautiously continues in positive territory with year to date sales ahead of 2010.  Central Alberta Realtor’s Association statistics show year to date sales across the region up 18.1% over the same period last year and every local market we track is up except Sylvan Lake which is down very slightly (3.8%).

There is no question that shale oil activity along the eastern slopes of the Rocky Mountains and development in the oil sands are the two driving factors.  It appears that the US government is close to approving a pipeline to move large amounts of oil from Ft. McMurray to Texas.  Increased activity in the oil sands is also helping our natural gas industry because separating the oil from the sand requires large amounts of natural gas.

The other direct benefit of the shaky world economic situation to our housing market is low interest rates.  Low rates will stay around as long as the economic growth of our trading partners is slow.  It is difficult for the Bank of Canada to raise our rates when other countries are forced to keep theirs low to stimulate economic growth.  Raising our interest rates would increase the value of the Canadian dollar which is already trading higher against the US dollar than it should be to keep our exports affordable.

It is a great time to buy a home.  The overall market still favours buyers in many ways – there are lots of homes to choose from, prices are still low compared to the 2006 and 2007 boom market and record low interest rates continue to make home ownership affordable.

Red Deer – year to date sales are up 13.1% over the same period in 2010 – demand is up.  The number of active listings at the beginning of September are down 20% this year compared to last – supply is down.  The sales to listing ratio in August was 22%, almost in the 25 – 30% range that represents a balanced market – the market balance slightly favours buyers.

Lacombe – year to date sales are up 8.2% compared to last year – demand is up.  The number of active listings at the beginning of September is just slightly higher than last September – supply is equal.  The sales to listings ratio in August of this year was 18.5%, up slightly from July – the market favours buyers.

Ponoka – year to date sales are still up 24% over the same period in 2010 – demand is up.  Active listings are 19% higher than Sept., 2010 – supply is up.  The sales to listings ratio in August was 13.5%, a 2% improvement over July – the market still favours buyers.

Sylvan Lake – year to date sales are down 3.8% over the same period in 2010 – demand is down slightly.  Active listings in September  were the same as September, 2010 – supply is even.  The sales to listings ratio in August was 8% – the market heavily favours buyers.

Blackfalds – year to date sales are up 25.5% compared to the same period in 2010 – demand is up.  Active listings on Aug. 1 were equal compared to September 2010 – supply is equal.  The sales to listings ratio in August was 19.3% compared to 13.6% in July of this year – the market still favours buyers but is showing strong gains back to balance.

The relationship between supply and demand in the acreage market continues to heavily favour buyers, but August sales activity was promising with 10 acreage sales in central Alberta over $500,000.

We have been hearing plenty about the hot real estate market in Canada lately.  It hasn’t arrived here yet because the energy sector that we are involved in locally is not fully back on its feet, but there are definitely signs that things will change over the next year.

First, Ft. McMurray is booming which is probably why the market in Calgary is getting better (head office city).  The expected economic benefit for all of Alberta is massive.

Second, the world economy is slowing improving – the stock markets being the best barometer.

Third, there is a new oil boom happening in the foothills of Alberta in the 50 year old Pembina field.  It seems the same shale recovery technology that has driven our gas prices down can be used to recover an additional 5 billion (or so) barrels of sweet light crude from shale formations right here in Alberta.   A huge boon for our local drilling and service companies.

There is no question that Alberta will again some day be a world leader in every way.  The fundamentals haven’t changed.  We still have all that oil and gas.

So, when will the market improve?  I don’t believe we will experience a strong real estate market for at least a year.  Why?  Well, when some of those employed in the energy sector do get back to work, it will take a little time for them to catch up and feel comfortable enough to spend on the large ticket items.

The world economy is still fragile.  The American economy is even more fragile and the US is still our largest trading partner.  Our dollar is at par which makes American demand for our goods weaker.  The US housing market is still in a shambles and billions of dollars that would normally get spent in our local markets are heading south to take advantage of those bargains.

Interest rates are rising.  An interest rate increase is the same as a price increase, except it’s the banks profiting instead of homeowners.

Our prices are off only about 10 – 15% from the peak in 2007.  There isn’t a lot of room for inflation before houses become less unaffordable again.

The best housing market is one that is balanced, with inflation that matches the annual inflation rate, where there are enough homes to choose from and adequate buyers for the available inventory.  And that’s what I’m hoping for in 2010.

The real estate market in central Alberta has not yet experienced the supply shortages and increasing demand we have been hearing so much about in the news. That phenomenon seems to be limited to Montreal, Toronto and Vancouver and is quite likely the result of very low interest rates and a sharp drop in new home construction over the past 2 years.

Very simply, real estate prices are dictated by the Supply of homes for sale and the number of buyers competing for those homes (Demand). When Supply increases and Demand doesn’t, prices will fall. When Demand increases and Supply doesn’t keep pace, prices will Increase. If Price increases and Supply keeps pace, Demand will decrease as affordability lessens. If Price decreases and Supply remains stable, Demand will increase. An increase or decrease in interest rates has the same effect as increase or decrease in Price. While all of that may seem a little confusing, understanding the Law of Supply and Demand will truly help us to interpret the local real estate market.

In most central Alberta markets, activity in the last two weeks of February slowed considerably which we can only attribute to all Canadian’s fascination with the Vancouver Olympics.

Red Deer – the number of active listings (Supply) is 600 – down 5% from the same time in 2009 and sitting at a level that we believe is about right for a city of 90,000 people. February sales were even with the same period in 2008 at 114, but year to date sales are up almost 15% over last year. The ratio of listings to sales in February was almost 23% representing the most stable market in our area, almost a balanced market which is defined by CMHC as 25 – 30% turnover each month.

Sylvan Lake – Active listings have stabilized and are about the same as last year at this time.  February sales are unchanged from February 2009 at 16. Year to date sales in Sylvan Lake are down 20% over the same period in 2009. The ratio between listings and sales in February was 10% indicating the same market conditions as our other centres where the buyer has an advantage.

Lacombe – Active listings (Supply) are down slightly from last year at this time while February 2010 sales were down 27% from February 2009. Year to date sales to the end of February 2010 are down 33% over the same period last year.  The ratio between listings and sales in February was about 10% which indicates the market still favours buyers.  Once the ratio between supply and demand reaches 25 – 30%, the market again favours sellers and prices will start to firm up.

Ponoka – Active listings (Supply) are down almost 20% from the same period last year.  February sales are unchanged from February 2009. Year to date sales in Ponoka are down 33% over the same period in 2009. The ratio between listings and sales in February was less than 10% suggesting there is still a strong advantage for buyers in this market.  Prices will not increase in this environment until the number of sales relative to the inventory increases substantially.

All in all, the central Alberta market appears to be languishing a little behind the rest of the country.  This can easily be attributed to a slower energy sector which now appears to be recovering somewhat.  With that recovery we can expect the real estate market to firm up some, but we don’t expect to see much gain in prices for the next few months.