Sales in Red Deer in September kept pace with July and August’s, demonstrating continuing consumer confidence in the local real estate market.  The number of active listings dropped just over 5%. However, the slight increase in sales relative to a drop in the number of active listings pushed the market further into balanced territory.

Sales in September were most active in the $250,000 – $350,000 price range, which coincidentally, is also where there are the most choices for buyers. This appears to be the ideal market for buyers with plenty of choice, very low interest rates and the likelihood that the market is gradually starting to improve.

There are positive signs for energy prices in the months to come. OPEC has finally made an effort to work to manage oil supply suggesting that higher prices may be in the future. Oil prices over the $50US mark would definitely help some of our struggling oil companies while bolstering consumer confidence.  Recent activity in the central Alberta real estate market seems to support that idea.

Sales in the first two weeks of September are up dramatically compared to the same time in August, and even up from the same time a year ago.  The number of active listings is up very slightly from last month but quite a bit higher than they were a year ago.  The level of sales this month so far suggests we are heading in the right direction when it comes to balancing supply and demand.

The most active price range was between $250,000 and $450,000, although there was activity across most of the price spectrum, even two sales in the $750,000+ price range.  It is an encouraging sign that there is still confidence in the local market when people are investing in higher priced homes.

Another sign of confidence in the Alberta housing market is evidenced in the article below.  Albertans are spending money at a record pace, renovating their existing homes even if they aren’t buying new homes.

Home renovations holding up well – Todd Hirsch, Chief Economist, Alberta Treasury Branches

As THE OWL reported yesterday, the slow economy may be wearing on new housing starts in Alberta.  But it doesn’t seem to be tempering the enthusiasm for renovating existing homes.  In fact, the most recent numbers suggest spending on residential renovations are near an all-time high.

In the second quarter of the year, home owners spent $1.56 billion on expansions or improvements to their properties.  The data include renovations on primary residence as well as cottages or recreational properties.  And because the survey captures only major renovations (i.e., those which must be done with a municipal building permit) it probably underestimates the total value of renovations—minor, unreported renovations such as new flooring, paint or lighting are not captured.

Renovation spending in the second quarter would, in fact, be a new record high if it was not for the spending that was registered in late 2013 and early 2014.  The renovation spending during these quarters were elevated by the southern Alberta flood in June of 2013 when millions of dollars were spent restoring houses that were devastated by the rising water.

The recent enthusiasm for renovation is a good sign that many Albertans are still investing money in their homes.  They may not be snapping up new properties to the same extent as they were a few years ago.  But they’re still finding the cash to put into their existing properties, creating homes and cottages that are larger, more modern and perhaps more energy efficient.

Month to date sales in Red Deer kept pace with July’s and were almost double the number sales for the same period in 2012.  The change from last year is in the number of active listings – down more than 10% from last year.  Fewer listings combined with strong sales is keeping Red Deer in Seller’s market territory, a bit unusual for the summer market.

Strong activity in new construction is a big factor in keeping the market closer to balance as people continue to move to Alberta in large numbers as indicated in the ATB article below.  It’s good to see that the jobs are not all energy related.  Growth in other sectors is critical to balance in our provincial economy.

Interest rates are on the rise, but still very low compared to the last 30 years.  Mortgage rate increases will have some negative impact on house prices. It will be interesting to watch how high they go and what impact they will have over the rest of the year.  It’s possible we could see stronger activity because buyers with locked in rates on mortgage pre-approvals are hurrying to buy before their lower rates expire.

Weather Cool, But Job Market Hot – Todd Hirsch, Senior Economist, ATB Financial 

Alberta may be experiencing a cold, damp summer—but its’ job market is anything but.  In July, Alberta gained 16,600 new jobs, bringing the seasonally adjusted total employment to 2.217 million workers. The June flood may have played a part: while the provincial unemployment rate fell to 4.5 per cent, it actually ticked higher in Calgary to 5.3 per cent.

Canada’s job picture was not as rosy this morning. A loss of 39,000 jobs surprised economists who had, in a consensus forecast, predicted a modest gain of 6,000 jobs. The national unemployment rate ticked up a tenth of a percentage point to 7.2 per cent—now only slightly below the 7.4 per cent rate in the United States.

Alberta and Saskatchewan remain the hot job markets of the Canadian economy with employment growing by 3.0 and 3.9 per cent, respectively, over the last twelve months. Nationally employment has grown by a much more sluggish 1.3 per cent.

The sectors creating the most jobs in Alberta are not, however, the traditionally strongest sectors. Indeed, the oil and gas sector has shed 9,500 jobs (year-over year), as has the construction sector (-4,900). The strongest gains have come on the service side of the economy—professional, scientific and technical services (+28,200), retail and wholesale trade (+17,600) and information, culture and recreation (+13,700) showed the largest annual gains.

The surging employment has also been marked by good quality jobs. Nearly 89 per cent of the new positions created over the last twelve months are fulltime. That has helped boost consumer confidence, retail sales and the housing market throughout the province.

January MLS sales in central Alberta are following last year’s trend.  One difference is the number of pending sales in Red Deer at 41 which is significantly higher than it was last January 15^th.  Activity after the Christmas lull typically starts out slow in January and builds to a peak in April or May.  That high pending sales count may be a sign that the strong spring market has come early.

The article below certainly explains why activity is already strong.  Lots of people are moving to Alberta where there are more jobs and better wages.  It’s difficult to predict how busy things will get, but if the world economy doesn’t get any worse and the US economy continues its gradual recovery, there will be lots of demand for our oil and natural gas.  Strong demand for those commodities means stable prices which means continued exploration and drilling.

At the risk of being repetitive, a strong energy sector means a strong central Alberta economy and all the benefits that accrue from it.  As mentioned below, new construction seems to be keeping pace, but there is the potential for some strain, which could lead to price inflation. 

Accommodating the Alberta bound – by Will van’t Veld, Economist, ATB Financial 

There’s a reason why Calgary’s C-Train has been feeling more congested lately: people have been flocking to Alberta. Not since the boom years have so many people arrived in our province—and if the pace keeps up it will have important implications for the local economy.

That people are coming to Alberta shouldn’t be a surprise. In fact, it’s slightly more surprising that it took until the first quarter of 2012 to see the numbers really spike. The unemployment rate is not only well below the national average, but wages have been steadily climbing. In fact, the average weekly wage in Alberta is now $156 higher than in Ontario.

While migrants from other provinces have recently shown more interest in our province, the upward trend in international migration has been occurring since the recession hit. Alberta gained about six thousand migrants due to international migration in the first quarter, almost double what the province was recording just five years ago.

The tremendous influx of people during the boom years caused a severe shortage of housing and other social services. So far, Alberta’s infrastructure and housing stock appears more prepared to accommodate the growing population.  There’s a good reason for this, as housing starts, for instance, might have dipped during the past couple years, they didn’t fall off of a cliff either. Major infrastructure projects also continued to go ahead.

With companies actively recruiting out of province workers, both nationally and internationally, and the prosperity gap still heavily in Alberta’s favour, there’s a good chance more people will be Alberta bound in the coming quarters. At a certain point it may strain our ability to accommodate them, but so far so good.

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.

Market Update – Month to date sales in Red Deer in August have slowed considerably compared to the same period last year and it’s unlikely we will reach the levels achieved in July. Some of that is probably due to the very nice summer weather we’ve been experiencing. As you can see from the articles below, the job situation in Alberta is very
healthy which should translate into a healthy housing market.

Our other central Alberta markets are experiencing much the same conditions with the exception of Sylvan Lake whichmay be benefitting from the nice weather and the resulting heavy lake traffic.

Oil prices have been gaining ground recently with prices hovering around $90 per barrel. While that doesn’t translate into good news at the pumps, it certainly is good news for energy
sector employees in central Alberta. We expect a good fall for the central Alberta housing market – an adequate supply and strong demand which equates to a balanced market, but very little increase in prices.

Excerpts from ATB Financial Daily
Economic Comment by Todd Hirsch, Senior Economist

Aug. 13, 2012 Full and Part Time Work – Last week Statistics Canada released the latest Labour Force Survey, which showed Alberta gained about 5,800 jobs in July. But not all jobs are the same—economists like to see gains in full-time positions as assign of a healthy economy. On that front, Alberta is doing just fine.

In July 2012, there were just under 1.8 million people working in full-time jobs in the province while there were only 351thousand working part-time. Compared to the previous month, full-time jobs were up by about 15,300, whereas there were actually 9,600 fewer part-time jobs.

Aug 14, 2012 – How Good Do We Have It? Most job seekers in this province know firsthand that times are good and finding work is generally not too difficult.
But Albertans may be surprised to hear that compared to many other places in the developed world— things are more than good—they’re great!

The Organization for Economic Cooperation and Development (OECD) tracks and reports the unemployment rate among the advanced, wealthy countries of the world. Given all of the economic uncertainty in many parts of the globe at the moment, these rates vary wildly.

Currently the highest unemployment rates among the OECD countries are found in Europe, with Spain taking top (bottom)honours at 24.6 per cent unemployment— basically, one in every four Spaniards is without work. Greece comes in second with an unemployment rate of 21.9 per cent, followed by Portugal at 15.2 per cent. Overall, the European Union is
grappling with unemployment of 10.3 per cent.

At the other end of the spectrum is Norway. Its oil fuelled economy means that only 3.0 per cent in that country are out of work.

The Asian OECD countries of South Korea and Japan also enjoy extremely low rates (although Japan’s overall economy is not performing that well).

If it was counted separately as an OECD country, Alberta would find itself in very good company. With an unemployment rate of4.5 per cent in May, it would rank as the fourth best place in the industrialized world in which to be looking for work.

The number of residential sales in Red Deer in July were just slightly higher than July 2011.  The good news is that year to date sales are up 15.5% thanks to a strong spring market.  The number of active listings compared to last year is down from 675 to 521 which has been a major factor in bringing the market into balance.

The sales to active listings ratio for July 2012 was 31%.  That means 3 buyers for every 10 homes on the market which CMHC considers balanced – where neither buyers or sellers have an advantage.   When we are experiencing a balanced market, prices should remain stable, rising to match inflation only.

The article below suggests that more people are moving to Alberta than ever and if that’s the case, the buyer advantage will diminish as more folks compete for those available homes.

Accommodating the Alberta bound – Will Van’t Veld , Economist, ATB Financial

There’s a reason why Calgary’s CTrain has been feeling more congested lately: people have been flocking to Alberta. Not since the boom years have so many people arrived in our province—and if the pace keeps up it will have important implications for the local economy.

That people are coming to Alberta shouldn’t be a surprise.  In fact, it’s slightly more surprising that it took until the first quarter of 2012 to see the numbers really spike. The unemployment rate is not only well below the national average, but wages have been steadily climbing. In fact, the average weekly wage in Alberta is now $156 higher than in Ontario.

While migrants from other provinces have recently shown more interest in our province, the upward trend in international migration has been occurring since the recession hit. Alberta gained about six thousand migrants due to international migration in the first quarter, almost double what the province was recording just five years ago.

The tremendous influx of people during the boom years caused a severe shortage of housing and other social services. So far, Alberta’s infrastructure and housing stock appears more prepared to accommodate the growing population. There’s a good reason for this, as housing starts, for instance, might have dipped during the past couple years, they didn’t fall off of a cliff either. Major infrastructure projects also continued to go ahead.

With companies actively recruiting out of province workers, both nationally and internationally, and the prosperity gap still heavily in Alberta’s favour, there’s a good chance more people will be Alberta bound in the coming quarters. At a certain point it may strain our ability to accommodate them, but so far so good.

Market Update – The central Alberta real estate market is moving along nicely, although demand has leveled off since early spring.  Lacombe, Sylvan Lake and Ponoka remain over supplied with sales to listings ratios that give the advantage to buyers.  Red Deer and Blackfalds markets remain solidly in seller market territory with sales to listing ratios in June of 37.5% and 33% respectively. 

Year to date sales of all types of residential properties in central Alberta are up almost 20% this year compared to 2011.  There are signs that prices have leveled off in all markets, and even increased slightly in as the gap between sales and listings has narrowed.

Excerpts from: Mortgages: 25 to 40 and back to 25 in 6 years – Will van’t Veld, ATB Financial

It turned out to be a brief flirtation. In 2006, 40 year amortization periods were introduced, now, six short years later, the standard amortization period on a home loan is returning to 25 years. Much of this is being driven by a desire to cool a housing market without touching interest rates (that influence the entire economy). But there are differences worth highlighting between how interest rates and altering credit conditions influence the demand for housing.

Real-estate is a unique good. It’s the largest investment a household is likely ever to make. The return the household gets from that investment is shelter—which as a necessity of life—and would have to be purchased in any respect in the form of rent. Giving Canadians the option to get into the property market instead of renting or having to wait to upgrade their living conditions, was no doubt the primary motivation behind the lengthening of the traditional amortization period.

Opting for a longer amortization period wasn’t cheap. Not only did it cost the mortgage holder a higher upfront free, but it also represented tens of thousands more in interest payments. Households were offered higher credit than they’d normally be offered—but it came at a cost to borrowers—and lenders still had to do their due diligence. Underwriting standards weren’t reduced, as they were in the United States, but the credit limit was increased. ……

Clearly the move to 40 year amortizations likely stimulated demand far more than anticipated, as no one in 2006 was equating longer amortization periods as an alternative to lowering interest rate to stimulate demand just for housing (i.e. the flip of today’s argument for going back to 25).

There’s a big difference between how changes to amortization periods might impact housing demand and the impact that lower interest rates has on the demand for housing. The former is truly a trade-off of higher current housing consumption or investment versus higher total interest and other costs, whereas the latter doesn’t entail any kind of trade off, it’s just cheaper or more expensive.

Take the impact of the recently announced shortening of amortization periods. The monthly payment on a $350,000 mortgage at four per cent increased $176 by lowering the amortization 5 years, but it saved the borrower about $47 thousand in total interest. The equivalent jump in monthly payments, keeping an amortization period constant, could be obtained by seeing mortgage rates increase 85 basis points. In this case, instead of seeing the all-in cost of the house decline it actually increases by a total of $63 thousand. ……..  Some wind will certainly be taken out of the home buyer market, especially at the margins with first-time homebuyers, but it was a prudent move.

The market is slightly ahead of last year at this time in terms of sales, but with 150 fewer listings.  That means firming prices and more competition for the well priced and well presented properties.

Activity at the higher end of the price spectrum is much improved, but don`t expect prices to move as quickly there since the ratio of demand to supply is still in buyer`s market territory.

The amazing news in the article below is the fact that almost 80,000 new jobs have been created in Alberta in the past year.

While that definitely means lower unemployment rates in Alberta, it also means population growth.  People in less fortunate parts of the country will move to the jobs and the very low rental vacancy rate here would support that idea.  The great part is, as they get settled, many of them will move from their temporary rental accommodations into home purchases.

E.I. Numbers Down – Todd Hirsch, ATB Financial

In another sign of better economic times in Alberta, the social safety net for the unemployed has gotten a little bit less crowded.

The number of Albertans collecting employment insurance (E.I.) benefits fell to 26,900 in March. That number is adjusted to account for seasonality and it’s 31 per cent lower than it was in the same month a year ago. Nationally, total E.I. beneficiaries dropped to 549,410 in March—down by a much more modest 9.3 per cent from a year ago.

One factor that lowers the total number of beneficiaries is time. Benefits expire after a certain number of weeks. And in a region like Alberta where the unemployment rate is low, the number of eligible weeks is correspondingly low, with some unemployed workers eligible for as little as 14 weeks of benefits (depending on how long they had been working prior to a layoff).

However, in Alberta the most significant driver of E.I.’s falling number is job creation. As we know from recent labour force surveys, job creation in Alberta has been on the rise with nearly 80,000 new positions cropping up over the past year.

The release of the employment insurance report comes on an interesting day. This morning the federal government is expected to announce changes to the program which could tighten some of the conditions for collecting E.I. benefits. That may result in falling numbers in the months ahead—with or without new job creation.

Market Update – Alberta’s economy is still steaming ahead, but maybe not with the same strength as in 2005 – 2007.  That is good news.  Uncontrolled growth takes a heavy toll on everyone and isn’t healthy.  While we all want the value of our largest asset (our homes) to increase, flat out inflation makes it difficult for first time buyers to enter the market.  First time buyers make it possible for the people selling those houses to move up, and so on.  Sometimes, the good news is that the market is strong and balanced, which is where we seem to be in the Red Deer market.  The smaller surrounding markets are still in buyer’s market territory with ample supply, which is good news for home buyers willing to move to a smaller center.

Manufacturing Flattens Out – Todd Hirsch Senior Economist, ATB Financial

Factory floors and refineries in Alberta have been a blur of activity lately. However, the rate of increase seems to have levelled off somewhat in the first quarter of 2012.

Manufacturers in Alberta shipped a total of $6.4 billion worth of goods in March. That is only a slight improvement over February (+0.5 per cent). Total Canadian manufacturing sales jumped by a more impressive 1.9 per cent in March to $49.7 billion. This is the largest advance since September 2011. The gain was led by the petroleum and coal products industry, which was led by output in Ontario’s refineries.

Alberta’s manufacturing sector is essentially an extension of the energy sector. The largest manufacturing category is petroleum and coal products ($1.6 billion), which includes all of the products pumped out of refineries.

Other important categories are chemicals ($1.1 billion), machinery ($740 million) and fabricated metal ($500 million). The two main categories that are not related to the energy sector are food products ($954 million) and wood and paper manufacturing ($329 million).

After having shown some steady gains throughout 2011, manufacturing in Alberta has levelled off. This could be related to the stagnation of oil prices at around $US 100 per barrel for the North American benchmark price (Alberta’s oil sells at a discount to this). Manufacturers are still busy—they’re just not gaining much ground. Given that the province’s economy is back into “boom” mode, some tempering of activity in manufacturing may actually be a bit of a welcomed sign. Things can overheat quickly.