·         ATB Financial – Weekly Bulletin – July 10 – Residential developers in Alberta started construction on 24,900 homes in June 2010, a drop of 1,800 compared to the month previous but well ahead of the pace one year ago when builders started only 17,800 homes. All figures have been seasonally adjusted and annualized, which means it is the number of homes that would be built during the year if construction continued as it did for the month. This was the second consecutive month of declining housing starts in Alberta, confirming that the mood has cooled in the residential construction sector after a fairly strong period in late 2009 and early 2010.

Drilling down by region, it appears that multi-family construction (includes condominiums, duplexes and town houses) in Edmonton bore the brunt of the provincial drop in housing starts. However, housing starts have been much stronger in Edmonton than Calgary over the last few months, so even though starts in Edmonton slipped from the month before they are still higher than in Calgary.

Moving forward, it is very likely that housing starts will continue to stay subdued compared to the beginning of the year. So far in 2010, housing starts have averaged 26,700 units, which is much stronger than during 2009 which saw fewer than 20,000 new home starts.  However, it’s still well below the pace of 2006 and 2007 when over 40,000 new homes were started.

·         Local Market Comment – The central Alberta market is a reflection of what is happening in the rest of the province.  The reason new housing starts are slowing is because we haven’t had the population growth to sustain the pace we were on.

The reason we haven’t had population growth is because we had negative job growth in the last two quarters of 2009 and only a very small net gain in the first quarter of 2010.  There were a lot of jobs created in Canada in the last quarter but almost all of them were in Ontario and Quebec.  For the first time in years, Alberta has been lagging behind the rest of the country when it comes to job growth.

The reason we haven’t had job growth here is because there has been low demand for commodities in the world wide economic slowdown we have been experiencing for the past two years.  It’s never quite that simple though.  There are other factors that have had an effect on our local economy.  As an example, the Alberta Provincial Royalty review and subsequent changes to the oil and natural gas royalty structure caused jobs and workers to move to Saskatchewan and B.C.

There are some positive signs that job creation in Alberta may be on the upswing. Well licences are up over last year, oil and gas land lease sales are up over last year, there are more drilling rigs working than at this time last year and well completions are up over last year.  All very positive signs of recovery in the energy sector and when the energy sector recovers in Alberta, everything else follows behind.

More good news!  It seems that once Albertans go to work, we make more than the average Canadian.  The trick now is to get more of us working.

One explanation I heard the other day for the ongoing lack of activity in the oil and gas sector is that they are still on spring breakup.  With all the wet weather it has been difficult for the equipment to get into the field, so they sit and wait.  Once it dries up a little, things will pick up substantially and that’s good news!

Last week we said that in order to see a change in our housing market, we need population growth.  In order to have population growth we need jobs and the place we’re currently lacking jobs is the energy sector.  According to this news article, the jobs will soon appear.

Energy sector short 24,000 workers by 2014 – By: Lauren Krugel – Winnipeg Free Press

CALGARY — Energy firms should build talent within their own ranks before the next labour crunch hits rather than look outside when they’re in the midst of a shortage, a human resources consultant said in a report Monday.

Many in Alberta’s oilpatch adopted a “buy talent” strategy during the boom times between 2006 and 2007, scrambling to fill jobs with workers from across Canada and abroad. Salaries and wages spiralled out of control as energy firms vied against one another for labour.

“I think if you talk to HR executives in the energy sector, they’ll tell you they don’t want to go back to that,” said Stephen Doitte, Mercer’s talent management consulting leader for Canada.

Assuming employment demand grows by four per cent annually, Mercer predicts the energy sector will be short some 24,000 workers by 2014.

The survey of 135 oil, natural gas and utility companies included permanent jobs across all job types, from tradespeople to engineers.

A study by the Petroleum Human Resources Council of Canada found the sector would need 100,000 workers by 2020 to support oil and gas activity.

Demographics are not working in the energy sector’s favour, Mercer said.  The bulk of the workforce consists of baby boomers, many of whom are nearing retirement. Another large chunk includes workers in their 20s and early 30s, known as Gen Y.

“The energy and resources sector in Canada basically skipped a generation,” Diotte said. “As the baby boomers retire, there’s a big gap in knowledge and skill and experience between those that are leaving and the ones that are coming in behind.”

That means companies should tailor their programs to suit the needs of each group, rather than adopting a one-size-fits-all approach.  — The Canadian Press

Market Update – There are conflicting stories floating around out there relative to the state of the market. Apparently some folks are putting a rosy glow on things and while I think it is important to be optimistic, we must also be honest and believable.

It’s very difficult to explain to our sellers why their houses aren’t selling when while making public statements that the market is taking off when that is not quite yet obvious. Red Deer sales to April 15th are almost 25% under where they were last April at this time (and last April was not a great month). Listings are up 5% over last year and we don’t see signs of a booming market anywhere.

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.