Don’t Just Read The Headline…. the news in the body of this article is really quite positive for Alberta, predicting improved employment growth in 2011.  Employment growth means more people working and population growth, which translates to economic well being.  Long term economic well being creates a strong housing market. 

For first time buyers, it appears that now is an opportune time to make your move to home ownership.  We do believe that there will be a very good selection of homes to buy this spring and combined with fantastic mortgage rates, makes this best time to buy.  If you are considering moving up, that great selection and the interest rate advantage applies to you as well. 

Alberta Firms Reluctant to Add to Payrolls – by Dan Sumner, Economist ATB Financial 

Alberta’s economy showed strong signs of life in the fourth quarter of 2010, with nearly all economic indicators pointing to the upside. However, when it comes to employment, firms have only reluctantly added to payrolls.

Total employment in Alberta shrank by 2,400 jobs in the final month of 2010, while the unemployment rate moved sideways at 5.6%. December’s reading was the second consecutive month of flat employment after seeing a big gain in October. 

Digging deeper into the data shows a generally lacklustre report with a gain of 3,100 part-time jobs more than offset by a loss of 5,500 full time positions. Alberta’s mighty energy sector saw strong job growth (+6,100) along with profession scientific and technical category (+13,300), which includes things like engineers, geologists and lawyers.

Interestingly, over the past year the forestry, mining and oil and gas category has seen the strongest job growth of any industry, adding nearly 30,000 jobs. Considering the energy sector is the base for so many other parts of Alberta’s economy, this could spell good news for jobs in 2011. 

Nationally, the jobs report was slightly more optimistic with Canadian employers adding 20,000 jobs in December. Over the last few months employment growth has slowed down markedly from earlier in the year, although has managed to stay positive. 

Employment in Alberta, which lagged behind momentum seen at the national level during 2010, is still just below its pre-recession peak. Looking into 2011, with the oil sector benefiting from strong prices and the economy generally moving in the right direction, it is likely that Alberta will finally regain all the jobs that were lost to the recession.

Market Update – We hear lots of words these days describing the local economy… slow and steady, modest, gradual, flat line, weakness, fall short, stronger, picking up …. etc. etc. 

When I look around me, things appear pretty normal in central Alberta.  Stores are busy, restaurants are busy and the streets and highways are full of traffic. 

One of the measures of a healthy economy is strong consumer confidence.  Imagine, if the average guy on the street has confidence, it can make a difference in the economy. 

We need to be careful not to over-analyze things too much sometimes.  Sometimes we need to forget all the negative stuff we hear from the media and just act like things are normal. 

Modest GDP Growth Kicks Off Q4 by Todd Hirsch, Senior Economist, ATB Financial 

It may have dipped into negative territory during the final month of the third quarter, but Canada’s GDP kicked off the fourth quarter with a month of positive, albeit modest, growth. 

In October, the national economy expanded by 0.2% (month-over-month, and adjusted for seasonality). 

Oil and gas extraction expanded by 1.3%, almost entirely on the strength of natural gas. Support activities for mining and oil and gas extraction rebounded (+9.9%) from its September decline. 

That pace of activity bodes well for Alberta. While monthly GDP figures are not reported for the provincial economies, Alberta is the dominant region for Canada’s oil and gas sector, and related support activities. The strong energy sector related activity— prompted by stronger oil prices— suggests that Alberta’s economy is picking up momentum. 

Other Canadian sectors to post gains were real estate, the public sector, wholesale trade and transportation. Contractions were seen in manufacturing, construction, utilities, retail trade, and finance and insurance. 

While the 0.2% expansion of the Canadian economy does represent a return to positive territory, it did fall a bit short of economists’ expectations (+0.3%). The underlying weakness in the US economy, which greatly affects Canadian exports, as well as the high Canadian dollar continue to weigh heavily on growth. Excluding natural resources, the economy has flat-lined. 

This morning’s GDP report is unlikely to prompt the Bank of Canada to raise rates at its next Fixed Announcement Date (January 18, 2011). If anything, it could encourage the central bank to hold off on rate increases until much later next year.

Market Update – We’ve said many times it takes population growth to maintain a stable housing market.  While we don’t have the old days back yet, we are moving in the right direction.  We expect activity to increase relative to population growth in the new year.  We don’t expect prices to escalate much without significant population growth. 

Interprovincial Net Migration Slows – Todd Hirsch – Senior Economist, ATB Financial – December 22, 2010 

A growing population is critical to the health of several economic sectors, including retail trade, housing markets, labour markets, and the tax base. Alberta’s population is still growing quite nicely, but the mix of factors contributing to the growth is shifting. 

Alberta’s total population rose by 14,100 (+0.4%) to an estimated 3,735,100. That increase matched the national growth rate; BC had the fastest growing population (+0.5%). Canada’s total population is now 34,238,035. 

During the third quarter of 2010, an estimated 21,702 people moved to Alberta from other provinces. At the same time, some 20,547 people from Alberta packed up and left for other provinces. On a net basis, Alberta’s interprovincial migration remained positive at 1,155 people—less than half the number in the second quarter. Interprovincial migration has returned to positive territory in 2010, but only barely. Stronger job markets in other provinces (notably Saskatchewan) have curtailed the inflow of job seekers. 

While interprovincial migration has not been as significant a source of population growth as it had been, other factors have propelled Alberta’s population higher. 

Natural population growth (i.e., births minus deaths) added 8,267 people. Alberta has the highest natural growth rate in the country, reflecting the high percentage of young families of child-rearing age. Net international migration also added 6,014 people.

Capacity Utilization Rising in Energy Sector – Todd Hirsch, Senior Economist, ATB Financial 

December 13, 2010 – High oil prices have been a lifeline for Alberta’s provincial economy in 2010. Those higher prices are showing up in how the industry is putting its resources to work. 

The percentage of industrial capacity being used in Canada’s oil and gas drilling sector rose to 80.9% in the third quarter of 2010, up from 80.3% in the second quarter. The increase brings national utilization to its highest point since the spring of 2007—long before the crash in energy prices sent Alberta’s energy dependent economy spiralling into recession. 

Total capacity utilization for all sectors in the country rose to 78.1% in the third quarter, up from 76.9% in the second quarter. It was the fifth consecutive increase since the record low rate of 67.8% in the second quarter of 2009. 

Capacity utilization is a useful indicator that estimates how much machinery, equipment, and other production resources are being activity put to use. The higher the utilization rate, the smaller is the excess capacity. As utilization rates approach 100%, inflationary pressures start to build. 

Utilization rates are not calculated at the provincial level, but the oil and gas sector in Canada is dominated by activity in Alberta. 

At 80.9% capacity utilization, the energy sector is clearly in better shape than it was a year or two ago. Higher oil prices have been the main driver, and utilization rates are building. However, weak natural gas prices are still leaving plenty of spare capacity on that side of the industry.

The Average House Price is Up?

The Red Deer Advocate, CMHC, The Bank of Montreal and the Realtor’s Association of Central Alberta have all recently reported that average sale prices are up this year.  Many folks who have been trying to sell their homes may be scratching their heads wondering why “reputable” sources would say something like that when their real estate associates are telling them that prices are down.  It’s a shame some of the experts don’t explain their statistics a little better.

There is a simple explanation.  In April of 2010, the rules for mortgage qualifying got a lot tougher.  The Federal Government instructed CMHC (and therefore the banks) to make it harder to qualify for a mortgage to prevent Canadians from getting into a mess like the Americans are trying to clean up now.

Those rule changes most affected first time buyers and sales of “starter homes” (sale prices less than $300,000) dropped 25% in the first 11 months of 2010 compared to the first 11 months of 2009.  In the same period sales of move up and high end homes also dropped, but only by 14%.

Surprise!  Sales of homes over $500,000 during that same time frame increased by more than 30%!

So, if more high priced homes sold compared to low priced homes in 2010 compared to 2009, it only makes sense that the ”average” price is higher.

You really can make statistics say anything you want.

The real truth about house prices can only be found through direct comparison of similar homes sold during the different time frames.  That process is not an exact science either, but it is likely more accurate than using mere averages.

An analysis of sales of starter and move up homes in Red Deer suggests that house prices in Red Deer are down between $10,000 and $20,000 (depending on the price range) from last spring before the government changed the rules and this fall.

The rule changes probably had a large influence on prices since activity in the housing market starts at the bottom of the price range and works its way up.  When lower priced homes sell for less, those people have to move up to a lower price, especially when it’s harder to qualify for a mortgage.

Obviously the economy is another factor affecting house prices.  While we are seeing signs that things are looking up, it may be a while before there is enough improvement to affect house prices.  It took 8 months for prices to come down 3 to 4 percent and it will almost certainly take that long for them to recover that much.

This is the new normal.  Make your home buying and selling decisions based on your family’s needs, not on your expectations for price inflation.  It’s always a good time to buy or sell if it’s in your family’s best interests.

The New Normal – Let’s face it.  We could sit around and lament about the good old days – when house prices were going up $10,000 per month – but were they really the good old days?  When you had to compete with 3 or 4 or more other buyers and offer more than full price for a house you didn’t even like that much.  The sooner we stop pining for the good old days and understand that this is the new normal, the better off we will be.  Now is the right time to make a move.

Alberta — Among the most affordable in Canada – RBC Economics Housing Affordability Survey

Despite substantially improved housing affordability in the province since early 2008, housing demand in Alberta is still a shadow of its former self from just a few years ago, and there are few signs that it is picking up meaningfully.

Market conditions remained quite weak in the third quarter, and buyers have emerged clearly in the driver’s seat, causing home prices to decline (down between 0.6% and 2.2% depending on the housing type) and contributing to further improvement affordability. The RBC Measures eased between 0.8 and 1.8 percentage points, more than reversing modest rises in the second quarter. Homeownership in Alberta is among the more affordable in Canada both in absolute terms and relative to its historical averages.

Such a high degree of affordability augurs well for a strengthening in housing demand, once the provincial job market sustains more substantial gains.

Alberta Job Market Lagging… for Now – Todd Hirsch, Senior Economist, ATB Financial

Alberta is used to being #1 when it comes to the economy. Over the years leading up to the 2009 recession, the province was racking up a series of top honours.  But coming out of the recession, Alberta still holds one not-so-flattering #1 position: the most lagging job market.

While some jobs have started to return to Alberta in 2010, employment growth has been slower than in the rest of the country. For Canada overall, total employment has now exceeded its pre-recession peak. Even Ontario has done better in the jobs category coming out of the recession.

During the recession, Alberta’s unemployment rate more than doubled, peaking at 7.5% in March of 2010 (seasonally adjusted). From the peak of employment in fall 2008 to the bottom in March 2010, over 75,000 jobs vanished in Alberta—on a proportional basis, it was the worst hit of all ten provinces.

As always, some perspective is necessary. Even though Alberta’s unemployment rate rose proportionately more than any other province, it started from an extremely low base.

Now, with an unemployment rate of 6% in October, Alberta still has a lower rate than most other provinces—and nearly 2 percentage points below the national average. Not bad, really, for the hardest-hit job market in the country!

However, with Alberta’s economy on the mend, it might not be too long before Alberta sees a return to labour shortages.

Market Update –  CMHC held their Annual Housing Market Update in Calgary this past week.  The information provided was very comprehensive and well presented and offered an economic perspective for Canada, Alberta and most of the larger cities in Alberta.

Good news!  Canada is on sound economic footing.  The average Canadian has equity in their homes and have not over-indulged on credit they can’t afford.

Most of the jobs lost in the recession have been recovered and we are on the way to economic recovery, how quickly will be determined by how well the United States and some European countries get through the next year or two.

There are many positive things happening in Alberta and even closer to home in central Alberta.  Oil and natural gas land lease sales are up.  Drilling activity in Alberta is up.  Exports from Alberta are up.  Job growth has re-appeared after being lost for 2 years.  And more people are moving into Alberta than out.

Oilsands projects that have been on the shelf are now being dusted off which will put thousands of people to work and create economic activity and royalty revenues to benefit the whole province.

So, how will all this impact you and the housing market?  Well, it’s all going to take some time.  Prices are not going to magically go up to the levels we experienced in 2007 any time soon.  There is still an abundance of homes available for sale and buyers are not going to be quick to jump into the market until they are very sure that things are getting better.

So, we continue to expect gradual improvement in the market for sellers.  Of course, improvement for sellers means less advantage for buyers.  Those who have been waiting for prices to go down might want to consider some of the signs.  Gradual improvement will mean less choices, higher prices and maybe even higher interest rates.  Things that make homes cost more.

For those who are waiting to sell until their homes increase in value, you might be getting closer, but it’s going to be a while before things are like the good old days, and while you are waiting, remember that the house you want to buy will go up an equal amount.

Truth is, there’s no gain in waiting to sell if you are going to turn around and buy back into this market.  In fact, it might be better to sell and buy now while interest rates are at historical lows and you still have lots of buying choices.

Market Update – “Gradual improvement” is often used these days to describe the Alberta economy.  The world economic situation is still described as tenuous but Canada continues to be the bright spot, although we are still very dependent on the rest of the world, especially the U.S., for economic prosperity.  Alberta has typically led Canada out of the doldrums.

 While no one can accurately predict the future, there are some fundamentals that we watch to get a sense of where our real estate market is going.  Real estate prices are driven by the number of properties available in relation to the number of buyers actively looking.  When there are more sellers than buyers, prices will moderate.  When there are more buyers than sellers, competition will drive prices up.

 Job creation causes population growth.  Population growth creates buyers for homes.  It’s really that simple.  We can’t easily track population growth, but we can watch for signs of job creation.  In Alberta the quickest way to create jobs is to see improvement in energy demand and therefore, energy prices.

 The “supply” of homes for sale is gradually shrinking and we are seeing signs of job creation (demand).  If that trend continues, home prices will stabilize.  We are not predicting much in the way of price increases because the next step in the process is a “balanced market” where supply and demand are in balance.  Substantial price inflation requires a move to more buyers than sellers and we don’t see that happening anytime soon.

 There is some risk in waiting to buy if you are hoping for prices to go down.  The other factor for home buyers to consider is interest rates.  Economic growth will almost certainly cause rates to go up, and an increase in interest rates is exactly the same as a price increase for anyone who needs a mortgage to buy their home.

 Energy sector seeing gradual improvement – By Dan Sumner, Economist – Alberta Treasury Branch

 It has been a long tough period for many companies involved in Alberta’s energy sector, but according to the Canadian Association of Oilwell Drilling Contractors (CAODC) activity in Alberta’s most important sector is projected to continue to gradually improve this year and next.

 The CAODC forecasts that there will be an average of 400 active drilling rigs in Western Canada over 2011, and the utilization rate will average a respectable 45%. That compares with an average of 327 rigs projected for 2010 and an average utilization rate of 41%. Moving into the typically busy fourth quarter, activity is projected to rise from current levels, with the utilization rate forecast at 50% over the last three months of 2010.

 The CAODC also noted in its forecast press release that the focus of activity has significantly shifted towards oil, at the expense of natural gas. This shift is expected to continue in 2011 and will spell good news for some areas of Alberta and not so good news for others.

 Although the CAODC does not make specific forecasts for Alberta, with much of Western Canada’s oil exploration occurring here, drilling activity should follow this general up trend.  The gradual recovery in conventional energy exploration will definitely be very good news for Wild Rose Country, as the industry is the fundamental driver of so many other sectors in the province.

 Although activity is far from the boom days of the mid-decade, the current pace of activity is enough to support gradual, sustainable economic growth. It is very fortunate that many energy producers are able to shift their focus towards oil, with natural gas prices so weak, because if this was not the case, the current economic landscape in Alberta would be a lot shakier.