Market Update- Red Deer sales were lower again in December, finally pulling the market into Buyer’s territory after many months when Seller’s had the advantage. The total number of active listing is back down to levels we saw last February and March. Total sales for the year are down 16.7% from 2014 but on par with or better than 2009, 2010, 2011, 2012, and only slightly lower than 2013. All that translates into a pretty normal year when considering the long term.

So, while things look a little grim based on the last quarter, the real estate market in 2015 was more robust than the media would have you believe. The truth is, Alberta’s population still grew in 2015 and there were still jobs created here. They weren’t the high paying jobs the energy industry used to generate, but certainly eased the pain a little. In the meantime, other Alberta industries benefitted from the low Canadian dollar and low energy costs. Transportation companies, airlines, logging, tourism and the public in general were all beneficiaries of low energy costs.

Unlike 2008, the rest of the world economy is moving along fairly well. There is no doubt that there will be some pain in Alberta from our current situation, but it would be foolish to assume that the sky is falling. As always, we will survive and come our stronger and better equipped to manage the next one.

The 10 best (non-oil) things about Alberta’s economy

12/17/2015

Special to The Globe and Mail

Published Thursday, Dec. 17, 2015

While it was booming, Alberta’s petroleum sector was a gravitational black hole that sucked up everything else around it. Other industries scrambled to compete for labour, office space and investment capital. It’s a challenge for a tech firm, for example, to open an office in Calgary when a receptionist could command $75,000 a year.

Today, Alberta is grappling with an energy patch that has lost its gravity, at least for now. Oil is below $40 (U.S.) a barrel, and it won’t come suddenly roaring back in 2016. This winter will be difficult for thousands who’ve been thrown out of work.

But Alberta has plenty of fantastic ace cards, none of which depends on the price of oil. It’s time the province starts playing them. Consider this Top 10 list of assets that any economic developer would salivate over:

10. Wind and sun
Given the world’s desire to use less fossil energy, being a very sunny and windy place has its merits. By some measures, Alberta’s potential for solar energy is 40-per-cent better than Germany’s. And in that country, solar energy is not some pie-in-the-sky fantasy for future generations. It’s happening now.

9. Air transport infrastructure
Calgary International Airport is home to Canada’s longest runway, able to handle the largest transcontinental cargo vessels. The continuing $2-billion in development includes the new International Terminal (geothermally heated and cooled), which will further solidify Calgary as the transportation and logistics hub of Western Canada.

8. Leading universities
Both the University of Alberta and the University of Calgary are recognized among the best research institutions in the country, if not the world. We want creative, innovative and adaptable citizens, and these two schools are leading the way.

7. Agricultural resources
The world might want energy, but it needs food. In the 1860s, John Palliser reported back to the British Parliament that this part of the Northwest Territories (now Alberta) was entirely unsuitable for agriculture. It took decades of irrigation canals, advances in agricultural science, drought-resistant seed technology, and plenty of hard work. But today, Alberta exports not only food products, but science and innovation on food production as well.

6. Lake Louise
Enough said.

5. Progressive mayors
In 2015, reputation and leadership are increasingly scarce resources. Toronto was embarrassed on the world stage by former mayor Rob Ford a couple of years ago, while the mayors of Alberta’s major cities helped their municipalities rise to the top. They’ve been featured by the BBC, in The Economist and on Al Jazeera – but unlike Toronto, for all the right reasons.

4. Engineers
With the oil slump, a lot of them have suddenly found themselves with some free time on their hands. But that’s an asset if they can be channelled into other non-petroleum industries. Engineers are great at solving problems, and Alberta has a few at the moment. For example, how can we turn ourselves into champions – rather than chumps – of the war on carbon?

3. Available office space
Construction cranes are still dotting the skylines of Calgary and Edmonton, and a tsunami of commercial office real estate is about to flood the market. That’s a problem for developers, but a bonanza for companies in sectors such as finance, technology and transportation. Leasing deals will be sweet (and a lot of it comes with stunning views of the Rockies).

2. A strong, liberal democracy
Given the level of crazy around the world right now, a strong liberal democracy within a united and peaceful nation is not a bad thing to flaunt. The world is drowning in gun violence, religious insanity and Donald Trump. In Alberta, we debate the financing of new hockey arenas and whether we should redesign our licence plates. When protesters scale oil rigs, we lure them down with hot chocolate.

1. A young, educated work force
A young, educated and entrepreneurial work force is the most valuable economic asset of all. People haven’t moved to Alberta to sit on the couch and play Xbox. They’ve moved here to build something. Tapping into that energy is more valuable than what any hydrocarbon could ever be worth.

• Look at that list: renewable energy, modern infrastructure, great universities, food and crop science, progressive politicians, engineers, plenty of office space, a young and educated population – wrap that all up with jaw-dropping scenery and throw in liberal democracy.

​
The only question is: With all of this going for it, how could Alberta not succeed?

Todd Hirsch is the Calgary-based chief economist of ATB Financial and author of The Boiling Frog Dilemma: Saving Canada from Economic Decline.

The Red Deer market continues to behave quite normally for this time of year.  Typically sales slow down and the number of active listings go down as well.  Our sales are down only slightly in the first two weeks of December compared to the same period last year while the number of active listings is down from last month, but still quite a bit higher than a year ago at this time.  The current ratio of sales to listings suggests we are now in a “Buyer’s Market”.  It’s time for the other half of the real estate market to have the advantage.

There are two things that we believe are currently contributing to our market.  The first is interest rates.  Today’s low rates make it much easier for those making payments to keep ahead, and for those looking to buy their first home or move up.  There are people not employed in the energy industry that now have an opportunity to take advantage of a bit slower market and those fantastic interest rates.

The second is laid out in the ATB article below.  There have been many times in the past few years when headlines lamented the shortage of workers in Alberta and the high number of unfilled jobs.  It appears that there is a silver lining in every cloud and at least for a little while until oil prices rise, there will be some happy employers in Alberta that can fill their need for workers.

 Employers finding it easier to fill jobs, Todd Hirsch, Chief Economist, Alberta Treasury Branch

The number of unfilled work positions in Alberta fell to 1.6 per cent in August, the lowest level it’s been since 2011 when Statistics Canada started tracking it. It’s also at the level of the national average, making Alberta’s labour market appear to be much more ordinary than it was even a year ago.

For the second quarter of 2015, Statistics Canada reported this morning that Alberta’s job vacancy rate was 3.4 per cent. (The quarterly jobless rate is always higher than the monthly rate because over a three-month period, there are going to be more jobs vacant at some point than during only one month.) That tied us with New Brunswick for the highest in the country.

According to the release this morning, “the job vacancy rate refers to the share of jobs that are unfilled out of all payroll jobs available. It represents the number of job vacancies expressed as a percentage of labour demand; that is, the sum of all occupied and vacant jobs.”

The higher levels of job vacancy in Alberta over the last several years illustrates how tight the labour market was then—and the difficulty that some employers had filling jobs. In this respect, today’s lower job vacancy rate is beneficial to companies because it’s now easier to find qualified applicants.

But the job vacancy rate isn’t low everywhere in Alberta. Canada’s highest job vacancy rate in the second quarter was in Banff–Jasper–Rocky Mountain House, a clear reflection of the great year the tourism industry is enjoying.

Why Alberta’s personal bankruptcies are not drastically rising  12/4/2015

Special to The Globe and Mail Published December 4, 2015

 Of all of the lousy things that can happen to someone, it doesn’t rank as the very worst. Still, being forced to file personal bankruptcy comes with some embarrassment and shame. It also makes it much more difficult to re-establish a proper credit rating, which makes it tough to borrow in the future.

Given the state of Alberta’s energy sector and the general economic recession that has settled across the province, one would assume that personal bankruptcies in the province would be skyrocketing. It’s been 18 months since oil prices started to nosedive. Job losses in the petroleum sector have taken a nasty toll and Alberta borrowers have racked up the highest levels of household debt in the country.

But in one of those apparent twists of logic that so often confound our expectations, personal bankruptcies in Alberta have risen only fractionally. Over the past complete twelve months, to the end of September, 2015, bankruptcies are up by only 100 (2.5 per cent) compared to the previous twelve months. And they’re still nowhere close to levels seen in 2009.

While on the surface this may be surprising, there are a few factors that help explain why bankruptcies are well-contained – at least for now.

The first is employment levels. True, there have been an estimated 25,000 jobs shed in Alberta’s oil and gas sector over the past year – and most of those jobs were well-paying. But in fact, overall employment in Alberta is still higher compared to a year ago. As of October, employment in tourism, construction, education, public administration and health and social assistance are up, year-over-year.

These jobs are generally lower-paying than those in the petroleum sector. But some unemployed oil patch workers have been able to pick up work in these other sectors. As well, many households have at least two income earners. So even in cases where one income was lost, the other income earner is still probably working. That’s propped up total household income and has prevented bankruptcy.

The second factor is the severance packages that have been extended to many of those laid-off Albertans. Certainly, not every worker has been fortunate enough to see a healthy cash severance payment (some may get only a cheque for two weeks’ pay, if that). But workers in management, or in technical, professional and scientific occupations – many of them the white-collar workers in downtown Calgary who are facing job losses – are regularly given between four to eight months of severance pay. Often it’s even more. This has certainly helped households manage their debt payments.

But the third factor is perhaps the most significant: Interest rates have remained near record lows. Making the minimum payment on a line of credit, a car loan or a monthly mortgage is not a smart way to manage debt, especially not in the long run. But in the event of a sudden loss of income, making the minimum payment is just enough to prevent default. The low interest rate reduces those minimum payments. In other economic downturns – especially the 1980s when interest rates were high – scraping together the minimum payment on a loan was more difficult.

For all of these reasons, we have yet to see consumer bankruptcies in Alberta rise anywhere close to 2009 levels. But no one should be too complacent about this. Rather than preventing bankruptcies, these factors are probably just delaying them. Generous severance packages and low interest rates can carry you for a while, but unless there’s a major rebound in Alberta’s economy very soon (and that’s unlikely), we can anticipate bankruptcy rates to steadily rise in 2016.

Todd Hirsch is the Calgary-based chief economist of ATB Financial

Market Update- The Red Deer real estate market is behaving a little better than other, smaller central Alberta markets, and better than we would expect considering the current economic situation in Alberta. Year to date sales in Red Deer are only down 16% when compared to 2014, but are on par when compared to the same period in 2012 and 2013.  Then number of active listings is also higher than this time last year, but is not a concern unless they continue to up significantly.  Red Deer has survived the downturn nicely so far.

A comparison of the West Texas Intermediate average oil price to the number of MLS sales in Alberta since 2007 supports the premise that our real estate market is directly affected by oil prices.  The number of sales is directly correlated to oil prices when prices are dropping, but lags about a year behind when oil prices start to recover.

So, in order to know where the real estate is going, we need to know where the price of oil is going. Historically, prices have recovered within months of a slide, but this time it may take a little longer as the world struggles to rationalize an over-supply and demand that’s not keeping up.  None of the world’s major suppliers are faring very well with current prices and something will have to give.  We hope it’s sooner rather than later.  In the meantime, very low interest rates will help in keeping the market moving.

Red Deer sales to the middle of November continued their normal slower trend going into winter and the Christmas season.  While sales are lower than last November’s number, they are very average when looking at other years since 2009.

The number of active listings is where it needs to be to provide adequate choices for buyers.  This environment creates the perfect opportunity for buyers, especially at the higher end of the price spectrum – great home choices, very low interest rates and stable prices.

Housing starts moderate in October – November 9, 2015 – Todd Hirsch – ATB FinancialHousing starts moderate in October – Nov. 9/15 – Todd Hirsch – ATB Financial

New home builders in Alberta were slightly less busy last month, according to the latest data from the Canada Mortgage and Housing Corporation. Housing starts totaled 31,770 in October (adjusted for seasonality and at an annualized rate—in other words, if builders kept up this same pace for 12 months, that’s the total number of new homes that would be built in one year).

This is one of the lowest monthly numbers over the last two years, a reflection of the slower economy in our province. Still, it would be wrong to exaggerate the slow down as anything too dramatic. Over the last 12 complete months, housing starts have averaged 38,000. That’s only slightly below the average over the previous period of 41,000 (see chart).

The fact that housing starts have pulled back only moderately this year reflects the fact that the market was in a healthy balance before oil prices started to drop. Prior to previous recessions—such as 2008 and 2009—home builders had put far too many new homes onto the market. When the downturn hit, there was a surplus of unsold homes on the market, so construction pulled back more severely.

There’s still a good chance housing starts may slow a bit more towards the end of the year and into 2016.  But having gone into the downturn without having built up too much inventory of new homes helped create a good balance. So even if housing starts continue to moderate, they’re unlikely to collapse.

An unchanged new house price index – November 12, 2015 – Nick Ford – ATB Financial

An unchanged new house price index – Nov. 12/15 – Nick Ford – ATB Financial

The price of new homes in Alberta stayed unchanged for the third month in a row, showing further signs that our province’s housing market has softened.

Just released, this morning’s data shows that the index of new homes in Alberta in September remained at 100.1 (based on an index where the average price of a new house in 2007 is set equal to 100). New home prices in Alberta currently sit at the same level as last year, and are essentially the same as they were back in 2007.

The price index for new homes in Calgary in September, sat at 110.4 for the third straight month, while Edmonton’s index remained at 91.5. Since last year, new home prices in Calgary have fallen by about 0.2 per cent. Alberta’s capital is on the other side of zero, prices are about 0.2 per cent higher than a year ago.

As The Owl reported on Monday, housing starts had shown some vigour at the start of the year, but have since started to moderate. And, like housing starts, the new housing price index confirms this moderation.

Sales in Red Deer have been very consistent for the past 3 months while the number of active listings is lower at the beginning of November than it was a month ago.  The Red Deer market continues to look quite normal in spite of ongoing concern about the Alberta economy.  One explanation may be that Red Deer has diversified form an oil town to a much more broadly based economy consisting of manufacturing, services, government, agriculture and construction in addition to oil and gas.

The Canada Mortgage and Housing Forecast for the 4^th quarter of 2015 predicts that total MLS sales in the Red Deer region will end the year 15% lower than 2014, with increases of 1.0 and 1.5 percent in 2016 and 2017 respectively.  That report also predicts the average price to drop by 1.1% this year and then increase by 1.1% in 2016 and 1.3% in 2017.  In other words, CMHC doesn’t see the market changing drastically one way or the other.

Predictions are very dangerous.  No one knows what the future holds.  We do know that housing is a necessary requirement for life in central Alberta.  The decision to buy or sell should not be made based on assumptions or hopes about whether prices will go up or down.  An investment in a home is made for more important reasons and has always been profitable in the long run.  Oil prices will eventually recover and Alberta will return to strong economic growth, just like it has in the past.

The question we are asked most often lately is “How is the market?  Are prices going down?  Where is the market going?  To answer the first question, the market so far this year has been very normal when compared to the last five years.  Answers to the other two questions are a little more difficult.

There are two major components that make up every real estate market – Supply (sellers) and Demand (buyers).  There are many factors that influence those two components, but the economy is the most important.  Most people rely on the media to tell them how the economy is doing.  The way the media represents the economy can influence consumer confidence.  When consumers are confident in the economy, they make buying and selling decisions.  When they are not confident, they tend to delay making those decisions.

The federal election campaign has no doubt impacted consumer confidence.  Every political party has been telling us that if the other guy wins, we are doomed.  Whichever one you believe, if you aren’t convinced they are going to win, it’s possible your confidence is low.

Sales so far this month in central Alberta have been generally normal for this time of year, but we have noticed that the number of pending sales are down, suggesting that the market has slowed a little just recently.  It is certainly possible that the election campaign and the uncertainty of the result has caused people to hold back until the election is over.

We can’t predict whether prices will go down or where the market is going.  The relationship between supply and demand will determine what prices do. We do know that it takes much longer for prices to go down, than it does for them to go up.

ATB Business Beat: Optimism drops, but businesses still happy, by Nick Ford, Economist at ATB Financial

ATB Financial’s third quarter Business Beat survey shows a decline in the number of small- to medium-sized businesses that believe Alberta’s economy will be stronger in six months. When asked about the province’s expected general economic performance, the index fell from 39.0 in the second quarter of the year to 25.2 in the third quarter.

This was the sixth consecutive quarter that there was a falling-off in the ATB Business Index, too. This particular measure of future business performance sat at 46.6, nearly seven points lower than the last round of polling and about 24 points lower than this time last year.

There’s no doubt that falling optimism is related to uncertainty clouding the energy sector. This last round of surveying was conducted in August, the month that saw the price of oil fall to around $US 38 per barrel. Given this, the drop in optimism is not surprising.

But, this latest version of the Business Beat survey focused on happiness, and despite the tension and frustration overshadowing our province’s oil and gas sector, over half of small and mid-sized business owners in Alberta report being pretty happy with nearly a quarter reporting that they are very happy.

So while oil prices remain suppressed and continue their battle in the marketplace, small- and medium-sized business owners in our province remain pretty happy.

September sales in Red Deer were off slightly from August’s while the number of active listings jumped, pushing the market into
buyer’s territory after several months when sellers had the advantage. The central Alberta market has fared extremely well this
year considering ATB economists are now predicting a slight contraction in the Alberta economy for 2015, and only modest
growth for 2016. The biggest reason for our stable market is that our population is still growing (a net gain of more than 8,000
people in Alberta in the 2nd quarter of this year, along with similar gains in the first quarter).
This week’s ATB Financial 4th Quarter Economic Outlook stated, “After 5 years of exceptionally strong growth, it now appears
certain that Alberta’s economy will contract in 2015. While that will be a challenge for many businesses and individuals who will
face loss of income and employment, it is not uncommon for our energy‐dependant province to face the occasional recession.
The single reason for the economic challenges this year is the drop in oil prices….. producers in Alberta have cut investments,
spending and workers…. Other major economic indicators showed some stability over the first three quarters of the year.
Residential construction was solid, wholesale and retail trade has stabilized and manufacturing has leveled off (albeit at a lower
value than a year ago).” See the entire report at www.atb.com/learn/economics

Sales in the first two weeks in September are on par with the same time in August, while the number of active listings is up slightly from the first of the month.  At the pace we are on, the sales to listing ratio this month will fall into “buyer’s” territory for the first time in many months.  That is normal at this time of year, but is likely also due to the slowing economy stretching into several months with no immediate relief in view.

In spite of the doom and gloom, the local market is doing very well.  The number of pending sales compares closely to the number we had pending a year ago.  Showing activity continues to be quite strong and those homes that are well priced and well presented continue to attract buyers.

While those employed in the energy industry are no doubt feeling the effects of protracted low oil prices, there are many segments of the economy that are benefitting from those low prices.  Tourism, agriculture, transportation and manufacturing are some of those beneficiaries.  A strong US dollar also provides a huge boost to tourism and those industries exporting goods and services anywhere in the world, since they are almost always paid in US dollars.

Our new provincial government has taken the position that the civil service won’t be affected by the slowdown and have clearly stated their intention to run large deficits in order to fund infrastructure development.  Whatever we believe the long term effects of those policies will be, there is no doubt they will pump money into the economy now, possibly lessening the short term negative impact on the housing market.

Economic slowdowns in Alberta have come and gone several times in recent years – 1984, 1992, 2002, 2008 to name the most recent.  Each time seemed quite desperate for those in the middle of it.  We genuinely feel for those who are most affected and never want to minimize the challenges they face, but we inevitably come out of it stronger, smarter and better able to deal with the next challenge.