The central Alberta real estate market continues to chug along.  Sales in the first half of June are down from May’s and off slightly from last June.  Historically June has been a slower month coming off our strong spring markets and we believe it’s because families are typically very busy in June with school year ending activities and just have less time to spend on looking at homes.  Typically, June has also been the end of spring break-up in the energy industry, marking the time those workers are back to work with less time to think about looking at homes.

Of course, there are many very complicated factors that affect the local and world economies and therefore the local real estate market.  That makes it very difficult to predict what comes next, but historically the market slows some going into the summer months and will pick up again in the fall.  Right now it appears that the market is close to balance with adequate inventories in most price ranges and reasonably strong demand as people continue to move to Alberta.

The biggest reason we continue to have adequate inventories is very strong activity in home construction as indicated in the article below.  Quite simply, at this point anyway, the builders are keeping up with demand and we are looking for a “normal” summer and fall market.

Housing starts hit five-year high – Todd Hirsch, Chief Economist, ATB Financial

While softer energy prices may be moderating overall economic growth this year, it appears that homebuilders didn’t receive the memo. Judging by the most recent statistics, its boom time in Alberta!

According to the latest figures from Canada Mortgage and Housing Corporation, builders started construction on 41,438 new homes in our province in May. That’s the highest this year and the first time since early 2008 that the figure has risen above the 40,000 mark. What’s more, the trend over the last several months clearly suggests that the housing market is heating up. Between May 2012 and May of this year, housing starts are 14.1 per cent higher than they were in the previous 12-month period.

What’s causing this boom in home construction isn’t any big mystery: population growth. Even if overall economic growth has slowed somewhat, the inflow of people into our province hasn’t. The latest Labour Force Survey (released last Friday) points to a surge in the labour force, which has grown by 59,400 (+2.6 per cent) over the last 12-months. Interprovincial and international migration to Alberta is driving some of the demand for new homes. High wages, low unemployment and a younger population are also contributing factors.

The strong housing starts number this morning is supported by another figure from Friday’s employment report—the number of construction jobs is also rising. Even if jobs in the energy patch and manufacturing have eased back a bit, employment in construction continues to provide some great work opportunities.

Another strong sales month in Red Deer – up 20% from last month and slightly ahead of May 2012.  The number of active listings did rise in May which is keeping the relationship between supply and demand from getting severely out of balance.  The rest of the central Alberta market continued on an active pace in May with sales up again over last month, but that market also saw an increase in the number of active listings and the Sylvan Lake, Lacombe and Ponoka markets are still balanced slightly in favour of buyers.  We are seeing more buyers expanding their searches into the outlying markets looking for more choice and better prices.

The ATB article below explains why our markets are good, but not going out of control.  The Canadian economy is moving a little slow, but oil prices are still quite strong which keeps Alberta at the head of the Canadian economic pack.  The pace of growth in Alberta is so far being matched by the construction industry adding living accommodations in pace with demand.

Canada’s economic thaw – Todd Hirsch, Chief Economist, ATB Financial 

With spring slowly morphing into summer in Canada, it appears the temperature is not the only thing on the rise.  Canada’s economy is slowly crawling out of last year’s winter chill.

In March, the Canadian economy expanded by 0.2 per cent over the previous month. While that is shy of the rate of growth in January and February, it is the third consecutive month in which the gross domestic product has advanced.

For the entire first quarter of 2013, Canada’s economy expanded by 0.6 per cent quarter-over-quarter, the fastest pace in over two years. The major contributor to growth was the mining and oil and gas sector, which advanced 4.1 per cent in the quarter. This was due largely to higher prices for Canadian crude oil, which pushed up the value of exports.

At an annualized rate—that is, the rate of growth the economy would experience if this same pace was sustained for 12 months—Canada’s economy grew by 2.5 per cent in the first quarter. That is ahead of the comparable growth rate in the U.S., which clocked in at a revised 2.4 per cent.

The GDP’s growth in March and in the first quarter is a good sign for the Canadian economy. Nonetheless, the pace of growth is still somewhat below what the Bank of Canada would regard as “potential growth”— meaning some excess capacity remains in the economy. Today’s GDP report is unlikely to change the Bank of Canada’s position it took earlier this week when interest rates were kept unchanged.

The real estate market across central Alberta continues to hum with very strong sales, but as indicated below, supply so far is keeping up with demand which will go a long way to keeping things in balance.  While the number of listings is not quite as high as last year, there seems to be adequate inventories to satisfy demand.  Prices have definitely firmed up, but they aren’t rapidly escalating which is great for the long term good of the market.

While sellers feel great when the value of their real estate rises, it often doesn’t help once they sell and become buyers because now they have to pay those same relatively higher prices for the home they are buying.

A strong, balanced market is the ideal situation and we seem to be currently there in central Alberta except for Ponoka where buyers still have the advantage.  We expect the Ponoka market to start to benefit from strong demand elsewhere in central Alberta this year.

The reasons for our strong market remain the same – strong oil and gas activity, expansion of the Nova plant at Joffre, affordable housing costs relative to incomes, very low interest rates and lots of in-migration to Alberta as a result of strong job market and high wages.

Accommodating the Alberta bound by 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.

Red Deer sales in April were up slightly from March but down 12% from April 2012.  The number of available listings is 8% lower than a year ago and 70 out of 426 active listings in Red Deer have sales pending.  The sales to listing ratio in Red Deer in April was 43% – solidly into Seller’s market territory.

The number of active listings in Red Deer is up in almost every price range except $250,000 – $300,000 where more than 90% of the inventory sold last month.  Sales were also strong between $300,000 and $400,000 although there are more choices for buyers in that range.

It appears that central Alberta and Red Deer in particular are an attractive option for folks moving here from the rest of Canada and the world.  Jobs are obviously the thing that attract people to central Alberta.  The $1 billion expansion at Joffre and continued demand for our central Alberta frac crews and equipment are certainly two major contributors to the demand for housing.

Alberta (re)bound?  Todd Hirsch, Senior Economist, ATB Financial

Our neighbour Saskatchewan may surpass Alberta this year as the fastest growing provincial economy. And for several quarters in a row, we seemed to be losing people to the good job opportunities there. But this trend may now be reversing, with the flow of migrants once again shifting in favour of wild rose country.

The push-and-pull between these two prairie sisters has seen some dramatic movements of people over the decades. For most of the period of 1985 to 2005, Alberta was the clear winner in drawing labour from Saskatchewan. But in 2007—perhaps due to an overheated housing market in Alberta and good jobs cropping up in Saskatchewan—the flow reversed sharply. In the third quarter of 2007 alone, a net 1,763 people moved from Alberta back home to Saskatchewan.

But in the fourth quarter of 2012, an estimated 2,166 people moved from Saskatchewan to Alberta; at the same time, only 1,532 moved in the other direction. That left Alberta with a net gain of approximately 634 people between the two provinces (see graph).

It’s hard to say if the slight edge in migration to Alberta is permanent or not. Certainly the increase in housing prices in Saskatoon and Regina has lowered the price differential between the two provinces, taking away that advantage for Saskatchewan. And Alberta’s economy continues to churn out jobs (albeit at a slower rate than in 2011).

Listing inventories in Red Deer are up from last month, but down 12% from this time last year.  At the same time, March sales are up slightly from February 2013 and up substantially from March 2012.  The sales to listing ratio in Red Deer last month climbed even further into Seller’s market territory and we are now seeing evidence that prices are rising compared to last year.  The activity in Red Deer reflects a strengthening market across all of central Alberta.

The scenario of increased listings, but lower inventories than last year, coupled with stronger sales, is happening in all central Alberta markets with Red Deer and Blackfalds leading the way.  In the short term, we can expect to see slightly higher prices across central Alberta as buyers compete for the “good” homes, especially in the $200,000 – $400,000 price range.

We are constantly asked “Where is the real estate market heading?”  Predictions are obviously dangerous, but the central Alberta real estate market still rises and falls with activity in the energy sector.  If the Keystone pipeline is approved, we think we can expect the market to continue to strengthen.  If not, it is likely we will find things a little slower until another solution is found to get our heavy oil to market.  It is unquestionable that will eventually happen.  Part of the answer may be explained below:

Oil patch rides the rails to price surge — The Globe and Mail

Price discounts on western Canada’s heavy oil have narrowed dramatically, as producers move record amounts of crude by rail in order to sidestep pipeline bottlenecks and reach thirsty U.S. refineries.  The price spread between Western Canadian Select and the North American benchmark is at its narrowest in more than a year, after shrinking rapidly in the last month. WCS sold for about $78 (U.S.) a barrel late last week, about $15 a barrel less than West Texas intermediate oil. That differential had reached nearly $35 in January.

The shrinking spread gives a reprieve to energy companies producing heavy oil in western Canada.

Those companies, which include global giants and small producers, have been hammered by the steep discount, leaving some to trim their budgets and pull back on expansion plans. The reduced differential is also welcome news for the government of Alberta, which is facing its sixth deficit in a row due in part to the price gap weighing on royalty revenue.

In the first 12 weeks of 2013, the number of carloads of petroleum products shipped by U.S. and Canadian railways was up 47 per cent from its year-ago level, according to National Bank Financial’s chief economist and strategist Stéfane Marion.

“Rail pipelines,” he said in a research note Monday, “now account for more than 5 per cent of total rail traffic in Canada, a tenfold increase from just three years ago.”  Analysts at Peters & Co. Ltd. project that crude oil transported by rail from Western Canada is expected to exceed 250,000 barrels a day by the end of 2013.

“The recent tightening in Canadian crude differentials is being assisted by the fact that material volumes are now being transported to market by rail,” the firm said Monday. “The use of rail is allowing for another outlet or market clearing mechanism other than pipeline.”

Meanwhile, railways are ramping up their crude capacity. “We see it as a sustainable, long-term growth market for our railroad,” said spokesman Ed Greenberg of Canadian Pacific Railway Ltd., noting that the company anticipates moving 70,000 carloads of crude by rail this year, up from 53,000 in 2012. Looking to 2016, CP plans to be moving two to three times its present volume of crude……

Energy companies themselves are showing signs of optimism and applauding railroads.  “The options for transporting western Canadian crude oil are in the process of being expanded through pipeline alterations and expansions as well as with the rapidly expanding use of rail for transportation to refining and export points,” Whitecap Resources Inc. said in a press release last month….

Spring has arrived in central Alberta, at least in the real estate market.  While the weather still says “winter”, new listings are coming on the market and buyers are busy snapping the good ones up almost as quickly as they come on.  While changes to the mortgage rules seemed to slow the market last summer and fall, interest rates as low as 2.89% for a five year mortgage term are probably helping buyers offset those changes.

The changes to the mortgage rules still seem to be creating some difficulty for first time buyers while low interest rates are benefitting move up buyers.  There is the possibility that some first time buyers were frightened out of the market and haven’t figured out the interest rate advantage yet.  It’s time they checked again while there are still adequate starter homes available. 

Home building in balance – Todd Hirsch, Senior Economist, ATB Financial

There are many words used to describe the Canadian housing sector at the moment, including “bubble,” “overheated” and “dangerous.” Most of those worrisome terms are in reference to residential markets in Toronto and Vancouver. But here in Alberta, the best word to describe the housing market is: balanced.

In February, home builders started construction on 33,337 new houses throughout our province. This figure is seasonally adjusted and reported at annualized rates (i.e., the number of homes that would be built in one calendar year if the current pace continues for 12 months). That’s up from the 29,300 total in January, and mostly on par with activity over the last year.

But over the last five years in Alberta, home builders have been on a bit of a rollercoaster ride. With starts peaking above 50,000 during the heady days of 2008, too many new homes were being placed on the market.

When the economic slowdown came the following year, housing starts tumbled sharply—as did the selling price for both new and existing homes. There was an excess of real estate that caused the much dreaded bubble.

Since that time, things have improved. Even though 2011 was another boom year for Alberta’s economy, home builders showed a bit more constraint— housing starts climbed their way back to the 5-year average, but never spiked too much higher than that.

This time around, builders have avoided a glut of inventory on the market. As a result, Alberta’s housing market enters 2013 in excellent balance.

The Red Deer market seems to be firing on all cylinders and heavily favoured sellers in February.  The sales to listing ratio was 44%, well above the 30% that indicates a seller’s market.  And, it is becoming difficult to find good homes for sale, especially in the  $200,000 to $450,000 price ranges.  Properties priced higher than $450,000 are still not experiencing the same activity and may represent a market where a buyer can still find good value. 

Sylvan Lake sales are pretty much keeping pace with last year while the number of active listings is down from last winter especially in the $200,000 – $350,000 price range.  Sales in Lacombe are keeping pace with last year but the number of listings is down.  Ponoka sales are down from last year and listing inventories are higher, which may cause some Lacombe buyers to consider Ponoka as an option.

It’s hard to define why all central Alberta markets are not on an even pace except that historically it seems that the smaller markets follow behind the larger Red Deer market.  As inventories shrink and prices start to firm in Red Deer, the surrounding markets will become a more attractive option.

At first glance, the article below is a little frightening, but if you read to the end, you will notice that Alberta seems to be the one place escaping the reality of the rest of the world’s economic doldrums.  That quite likely makes Alberta an attractive destination, which creates more demand for housing, which creates jobs and economic activity and so on, and so on.

Canada’s economy tumbles in December – Todd Hirsch, Senior Economist, ATB Financial

Economic growth in Canada was already on an established downward trend in 2012, but by the final month of the year the overall GDP slipped into contraction.

In December, the value of total goods and services produced in Canada fell by 0.2 per cent compared to November. That followed a surprisingly strong month of growth in November (+0.3 per cent), and was only the third month in the year in which the economy slid into reverse. On a quarterly basis, the fourth quarter of 2012 saw a small expansion of 0.2 per cent, matching the gain in the third quarter.

For the entire year, Canada’s real GDP expanded by 1.8 per cent in 2012 after growing by 2.6 per cent in 2011.

The monthly dip in economic activity was due to particular softness in a couple of key industries. According to Statistics Canada’s media release this morning: “Manufacturing and, to a lesser extent, retail trade and utilities were the main sources of the December decline. Wholesale trade, transportation and warehousing, as well as the arts and entertainment sector also decreased.”

There were a few bright spots in December, however, including mining, oil and gas extraction.  Nationally, it advanced 0.3 per cent over the previous month. This morning’s data do not provide breakdowns provincially, but given that Alberta accounts for about 70 per cent of Canada’s oil and gas industry, the numbers suggest Alberta’s economy was still expanding at a healthier rate than was the rest of the country.

The real estate market in central Alberta in February is strong.  Red Deer, Blackfalds, Sylvan Lake and Lacombe sales are up noticeably from the same period in January while Ponoka is keeping pace.  The number of listings is also up slightly, but the gap between supply and demand has narrowed.

If we assume that the market is going to continue at its current pace, it would be easy to predict a listing shortage, stronger sales and inflating prices for the rest of the year.  That forecast may be premature until we see what the provincial budget has in store and whether the US approves the Keystone pipeline.

The differential between world oil prices and what we sell our oil for in Alberta has created a shortfall of $6 billion in government revenue and the way the government reacts to that in the budget on March 8^th could have an impact on the housing market.  Approval for the Keystone pipeline would generate optimism and the pace that the oil sands develop.  That approval would be huge for Alberta in every way.

According to the article below, it appears that the construction industry is very cautious going forward, which is a good thing.

Housing’s delicate balance – Todd Hirsch Senior Economist, ATB Financial

Last Friday, Canada Mortgage and Housing Corp. released new data on housing construction across the country. In Alberta, the monthly number was a bit disappointing. However, a longer-term vantage point can offer a more encouraging perspective.

In January, home builders started construction on 29,366 houses across all areas of Alberta (seasonally adjusted and at an annualized rate). That’s the second month in a row in which housing starts had fallen, and one of the lowest totals over the last 18 months. There’s no question the pace of home construction has moderated. Indeed, starts could slow a bit more in the coming months given the economic headwinds the province is starting to experience.

Still, the January housing starts remain above the five-year average. And given the steady and moderate increase in the price of new homes, the market appears to be in relatively good balance.

During the boom years of 2006 and 2007, when housing starts were above 40,000 annually, there was actually a surplus of homes being built. That led to a glut of properties during the 2009-10 recession, and housing starts plummeted (see graph).

This time around, however, home builders appear to be more constrained; fewer homes are being built on the speculation of buyers (“spec” homes). That should leave the new home market in reasonably good shape if the economy continues to slow in 2013. Fewer excess homes on the market will help support prices and maintain balance.

There was one buyer for every three homes for sale in Red Deer in January.  That puts us firmly into Seller’s market territory.  The reason is likely that buyers are entering the market before spring inventories have a chance to establish.

Sales are typically slow in January and February and pick up in the spring along with the number of active listings.  This year, the Buyers are out early, probably because the rental market is experiencing low vacancy rates and rising rents and low interest rates are making home buying an attractive option.

As always, there are reasons to be concerned and there are reasons to be optimistic.  It seems Albertans are choosing to be optimistic.

Behind the Bank’s Change of Tune by Will van ‘t Veld Economist, ATB Financial

Last week, the Bank of Canada stated it is no longer looking at raising interest rates any time soon. That’s because Canadian households now seem to be taking on debt at a slower pace and inflation remains tame.

But the central bank’s outlook shift is also due to a more negative view of Canadian economic growth. And that’s what makes it so noteworthy.

Since the fourth quarter of 2008, Canada has averaged an annualized quarterly growth rate of about 2 per cent. Not stellar, but better than most industrialized nations. Household and government spending has led the way, contributing an average of 1.2 and 0.4 per cent, respectively. But these sectors are running out of steam. With debt loads rising, governments and households will be looking closer at their spending.

If you could flip a switch, this would be the perfect time to shift from domestic consumption spending to business investment and export-driven growth. But there is no switch. Investment spending has been a huge boost to Western Canada, where real business investment is up 44 per cent since 2009, but elsewhere in the country business hasn’t been so eager.

Excluding B.C., Alberta and Saskatchewan, business investment in Canada has rebounded 20 per cent, putting real business investment at near 2008 levels.

As for Canada’s trade situation, it’s not great.  Between manufacturers getting hammered and oil producers getting a reduced price, Canada’s net trade position has been a significant drag on growth.

There is hope the economy is in a transition. A rebounding U.S. economy will likely be good news for exports and investment growth and pipeline developments will likely reduce the price differential. If this doesn’t play out, the Bank of Canada might stay on the sidelines for even longer than any time soon.

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.