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.

Market Update – The local real estate market pretty much reflects the provincial outlook provided by CMHC.  The Red Deer market continues to be strong, although not as busy as earlier in the spring.  As always, activity is strongest at the low to middle end of the price spectrum.  We have seen activity slow most dramatically from spring in properties priced over $500,000 where the sales to listing ratio is less than 10%.  That means that less than one out of ten homes for sale in that price range will sell in a month.  The Blackfalds market is a reflection of the Red Deer market with strong sales and a high sales to listing ratio.

Sales in Lacombe, Sylvan Lake and Ponoka are also stronger than last year, but the ratio between listings and sales still favours buyers.

Long term predictions for the market would be dangerous.  Obviously the central Alberta market is heavily dependent on a strong energy sector.  A slower world economy demands less energy and less demand equates to lower prices.  If world oil prices drop below $80/barrel, there is concern that our local energy sector will slow down.  On a positive note, the US economy seems to be gaining traction and the US is our largest trading partner.  Stronger demand there may offset a slower world economy.

Our best guess for the near term is a stable market, with adequate supply (or excess) supply in most markets.  Under the circumstances, we don’t expect to see much price appreciation, but do expect very stable prices.

Excerpts from CMHC Housing Outlook – 2^nd Quarter 2012

Rising employment, population gains, and low mortgage rates will help propel resale transactions in 2012 in the Prairies to 85,200 units, up almost seven per cent from 2011. MLS® sales in Alberta will rise by over seven per cent to 57,600 units in 2012, then increase to 59,200 units in 2013…..

The Prairie’s average MLS® price will increase by near three per cent in 2012 to about $327,000.  A similar level of growth will raise the average price toward $337,000 in 2013. Over half of Alberta’s major markets remain in buyers’ market conditions, holding back price growth….

The average MLS® price in Alberta is projected to rise by about two per cent to $360,900 in 2012. With improved market balance in 2013, Alberta’s average resale price will rise by near three per cent to $371,500.

In Alberta, competition from the resale market and rising inventory levels caused builders to reduce single-detached starts in 2011.  Improving economic and demographic conditions are now lifting housing demand and builders are responding by increasing production. In 2012, single-detached starts are projected to rise by 15 per cent to 17,500 units.

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.

Market Update – The central Alberta real estate market continues to strengthen as we move through the spring market.  Generally, the supply of homes for sale in central Alberta is shrinking or stable while demand continues to grow.  Most of the smaller markets are in balance or favor buyers, while the Red Deer market is clearly in seller’s market territory with a 44% sales to listing ratio in April.  That means more competition for the good Red Deer properties and the potential for price increases.  Typically, the Red Deer market will improve first with the smaller surrounding centres following suit.  As prices in Red Deer firm up, more buyers will consider the smaller centres and the comparably lower prices available there.

Obviously, oil continues to be the stimulus for economic activity in central Alberta.  High oil prices make horizontal drilling in the rock formations along the foothills viable.  Those wells require huge frac activity to free up the oil and central Alberta is a centre for frac companies. 

The dark clouds on the horizon remain very low natural gas prices, the perceived “over-heated” Canadian real estate market, the US economic recovery and the European economic crisis.  The Governor of the Bank of Canada concerned enough about real estate inflation in Toronto that he is considering an interest rate increase for all of Canada.  In spite of the negatives, the short term future for Alberta appears to be very bright.  Our provincial government seems to believe so too, planning on huge spending programs and counting on massive resource revenues to pay the bills.  Those huge spending programs will almost certainly fuel strong growth for the short term as long as the expected revenues materialize to fund them.

Red Deer – year to date sales are up 22% over 2011.  April sales are up 57% over April 2011.  Listings as of May 1 are down 24% from May 1, 2011.  April sales to listing ratio – 43.9% – Seller’s Market.

Lacombe – year to date sales are up 34% over 2011.  April sales are up 39% over April 2011.  Listings as of May 1 are at the same level as May 1, 2011.  April sales to listing ratio – 20% – Buyer’s Market

Sylvan Lake – year to date sales are up 40% over 2011.  April sales are up 35% over April 2011.  Listings as of May 1 are at the same level as May 1, 2011.  April sales to listing ratio – 15.25% – Buyer’s Market

Ponoka – year to date sales are up 70% over 2011.  April sales were slightly lower than April 2011.  Listings as of May 1 are slightly higher than at May 1, 2011.  April sales to listing ratio – 9.25% – Buyer’s Market 

Blackfalds – year to date sales are up 54% over 2011.  April sales are up 130% over April 2011.  Listings as of May 1 are down 24% compared to May 1, 2011.  April sales to listing ratio – 31.5% – Seller’s Market

Blackfalds being the closest market to Red Deer, is now benefitting from the tightening supply and stronger prices in Red Deer.  Assuming the current trends continue, the rest of our smaller markets will soon follow suit.

One other interesting fact about the central Alberta real estate market in 2012 is that demand for homes above the starter market is much stronger than we’ve experienced since 2007.  Renewed confidence in the economy seems to have people moving up once again.

The central Alberta real estate market is holding up well but not booming as might have been predicted based on February activity.  Sales in the first half of April are up slightly compared to the same time last year and inventories are down in most markets.  Inventories have surprised us a little staying higher than we thought they might, especially in the lower price ranges.  Those stable inventories and demand dampened maybe a little by the weather have kept prices stable as well.  Very low interest rates still make this a great time to buy.

Alberta Treasury Branches – Weekly Update – Apr. 12/2002

New Home Sale prices steady – Since coming down after the boom the price of new homes in Alberta has been relatively flat. In fact, since 2009 the provincial average new home price has actually dropped 0.5%. Prices move quickly when there’s a sudden disjuncture between supply and demand and this simply hasn’t happened in Alberta in recent years.

Elsewhere in the country builders have been able to raise their asking price. In Toronto the new home price index has risen 10.5% over the past three years. Saskatchewan has also seen new home prices increase rather substantially over the past three years, up 9.3%.

Which way is the U.S. Economy going?   Depending on what day you opened the paper the American economy was either strengthening or stagnating. Earlier in the week the Federal Reserve released the results of its beige book. The beige book is a compilation of interviews that are conducted around the country to give a qualitative view of how key industries are doing. The results of the interviews were uniformly positive, with most interviews expanding and hiring at a moderate pace; the only negative was concern over gas prices. 

Employment concerns continued to be the downer this week, after last week it was revealed that the economy was adding jobs at a substantially reduced pace. This week it was reported that unemployment benefit claims had risen to a seasonally adjusted 380,000; this was 13,000 higher than the last report, and an unexpected reversal, after having declined for most of the year.

Lastly, Americans have long consumed more than they produced and it’s not going to change overnight, but trade numbers show that the balance is narrowing, going from $52.5 billion in January to a deficit of $46 billion in February.

The trade numbers were actually better than expected, as there was concern that the situation in Europe would have weighed on exports (the EU is the destination of over 20% of U.S. goods). Also helping the trade balance was a reduction in oil imports, as fewer imports are required with U.S. energy production increasing dramatically.

The central Alberta housing market is healthy and showing signs of further improvement as the world and U.S. economies continue to strengthen.  Very simply, oil prices dictate our future.  Strong demand for oil keeps prices high and drives demand for the shale oil along the foothills and the oil sands.

The provincial government is predicting $5 billion surpluses by 2015 for a province that already has the lowest taxes, best health care system and no debt.  People from other provinces are once again coming to Alberta in large numbers and they all need places to live, which explains our suddenly low vacancy rates and rising rents.

The future certainly seems bright for now – there is still good availability of homes, house prices are affordable, interest rates are low.  We expect the current trend to continue for the short term, but expect that all markets will swing into seller’s territory in the next few months and house prices will slowly rise in response stronger demand and lower supply.

Red Deer – Listing inventories are down from a year ago, but up from a month ago.  Sales in March were up very slightly over March 2011 and year to date sales are up 9.3% over last year.  The current listing to sales ratio is well into seller`s market territory at just under 38%.  That means 4 out of 10 homes listed in Red Deer sold last month.

The Red Deer market is typically the first to experience increases in sales, but the other central Alberta markets are sure to follow suit as good product becomes more scarce and more expensive in Red Deer.   Very tight vacancy rates for Red Deer rentals is certainly contributing to the increase in sales this year.

Lacombe – Lacombe year to date sales are up more than 30% over the same period in 2011, but inventories are more than adequate at this point to handle the demand.  Only slightly more than 1 in 10 houses for sale in Lacombe sold in March, which points to stable prices until that ratio changes.  Inventories are slightly higher than this time last year making Lacombe a good option for buyers.

Sylvan Lake – year to date sales are also up more than 30% but inventory levels equal to last year are keeping the sales to listing ratio at 1 in 10 homes sold in March.  The number of properties for sale in Sylvan Lake is skewed a little by the inclusion of recreation and lake properties, but there is still a good supply of homes available in all markets.  Sylvan Lake also represents good opportunities for home buyers.

Ponoka – affordability has been a key factor in the Ponoka market and buyers are coming to play with year to date sales more than double the same period as last year.  Listing inventories are shrinking slightly and two out of ten homes for sale sold last month.  Good starter product in Ponoka is getting scarce and that market is tightening up at the low end of the price spectrum.  We expect to see prices starting to catch up with the rest of the central Alberta market.

Blackfalds – this market is most closely following the Red Deer market with more than 3 out of 10 homes selling in March.  Inventory levels are quite low and year to date sales are up 35% over 2011.  Starter inventory is still plentiful but could soon shrink as people who can’t find what they are looking for in Red Deer start to look outside the city at the closest point available.

Sales and listing activity continue their positive track this month as we move into the busy spring market.  Active listings in Red Deer are down more than 30% from the same time last year while sales are up 21%.  The current sales to listing ratio so far this month is 40%.  That means that 4 out of 10 homes on the market will sell this month.  CMHA defines a Seller’s market as one where 3 out of 10 homes sell every month.  When we reach a 40% sales to listing ratio, prices are starting to firm up.  We have seen evidence of firming prices and a strong Seller’s market recently in the form of multiple offers on the same home and occasional sales over the listed price.

Where are we going from here?  It appears that the world and US economies are weak but not faltering.  Oil prices remain well over $100/barrel.  Employment In central Alberta is growing.  So, our local real estate market will continue to strengthen.  Prices are on the way up and competition for well priced, well presented homes will be strong.

Western Employers to Ramp-up Hiring – Will van ‘t Veld Economist, ATB Financial

The national unemployment rate has been creeping up lately, but a look at hiring intentions over the coming months indicates that employers are optimistic that they will be expanding payrolls—especially in Western Canada.

The Manpower Corporation is an employee staffing corporation with operations around the world. It conducts a quarterly survey, asking respondents how they see employment changing at their firm over the next three months. The net employment outlook is then computed as the difference between those firms that will likely be adding employees versus those that will be looking to reduce payrolls.

Nationally the seasonally adjusted net employment outlook stood at 13% for the second quarter of 2012, which is exactly where it stood a year ago. Construction and mining look to be the industries that will be doing the most hiring; the two industries that will barely increase hiring will be public administration and education.

Ontario has been struggling lately and hiring intentions there remain below the national average, although they are still positive. The non-seasonally adjusted (provincial numbers aren’t seasonally adjusted) net employment figure was 13% versus 16% nationally. On the more positive side, net hiring intentions in the beleaguered manufacturing sector look relatively strong, at 18%.

Unsurprisingly, the results out of Western Canada were by far the strongest, with net hiring intentions of 19%. Respondents in the West foresee a fierce hiring season in the construction (34%), non-durable manufacturing (29%) and mining (29%) industries. It won’t be rosy for everyone, however, with hiring intentions in the education (2%) and the public administration (4%) looking very tepid.

There is no doubt that the rental vacancy rate in central Alberta is down, and like house prices, rental rates rise when supply decreases and demand increases.  The other thing that low vacancy rates and higher rents does, is encourage renters to buy homes.  The current environment of low interest rates and a decent supply of starter homes makes this an ideal time for that scenario. 

Rents on the Rise?  Todd Hirsch, Senior Economist, ATB Financial 

While the housing market tends to steal the show when it comes to economic indicators, the apartment rental market still provides accommodation for hundreds of thousands of Albertans. Apartment rents have remained fairly steady over the past few years, but with another economic boom underway in Alberta, that could change. 

According to the Consumer Price Index, rental accommodation in the province stood at an index level of 123.1 in January 2012 (with 2002=100). 

The graph below shows the steep climb in rental rates through the boom years of 2006 and 2007, when at the time apartment vacancies were extremely low and landowners could command higher rents. In those years, thousands of Canadians from other parts of the country were flooding into Alberta for work. And as inter-provincial and international migrants tend to rent when they first arrive, they strongly influenced the rental market. 

When Alberta slammed on the economic brakes in 2008, apartment vacancies rose and rents levelled off. In fact, on a provincial average, rents actually decreased somewhat through 2010. The province suffered a couple of quarters of net out migration to other provinces. 

Now, however, Alberta has regained its traditional position of a destination province, largely due to the strong labour market. And as a result, apartment rents have started to creep higher in the past few quarters. That could be a trend in the coming months and years if the economy continues to perform well.

Optimism continues for the Alberta economy and the central Alberta housing market.  Year to date sales in central Alberta are up just over 8% compared to the same time last year while listing inventories are down.  The number of pending sales is up substantially which suggests that February sales will be much stronger than a year ago.

The improvement in the market is as always a result of high oil prices and low interest rates.  As long as we have that combination, the market will continue to strengthen and buyers can expect less choice and higher prices

CMHC Housing Outlook – 1^st Quarter 2012 – In Alberta, single-detached starts moved lower in 2011 due to rising inventories and heightened supply in the new and resale markets. Moving forward, demand is expected to improve with continued economic growth and job creation. In 2012, single-detached starts are projected to rise by 14 per cent to 17,300 units. In 2013, price gains and modestly higher mortgage rates will increase monthly carrying costs. Builders will thus align new construction to presales to keep inventory low. This will moderate the gain to single-detached starts next year to four per cent.

Multi-family starts in Alberta will continue to rise over the forecast period. Production in 2012 is projected to increase by about 12 per cent over 2011 activity to 11,800 units, and then level at 12,000 units in 2013. This is about double the recent low of nearly 6,000 units in 2009, yet substantially below the high of approximately 20,200 units in 2007. After a period of dormancy, the high-rise condominium market is beginning to show more signs of activity, and this market should improve with lower inventories and the expected economic and demographic growth.

Residential MLS® sales in Alberta rose around seven per cent in 2011, while new listings decreased by four per cent. Alberta’s bright economic and demographic outlook will result in growing demand for resale homes. In 2012, resale transactions are projected to rise to 54,650 units and then increase by over three per cent to 56,550 in 2013.

Most of Alberta’s major resale markets were in buyers’ market conditions through 2011, holding price growth to near one per cent. The notable exception was the stronger market conditions in Wood Buffalo, where the oil sands driven economy boosted the average price by 6.5 per cent. Over the forecast period, gains in employment and migration are expected to lift demand, improve market balance, and increase Alberta’s average resale price to $363,650 in 2012 and then rise to $372,300 in 2013.

Alberta CMHC summary:

• Housing starts will rise by 13 per cent to 29,100 units in 2012 and increase to 30,000 units in 2013.
• MLS® sales will rise by over two per cent to 54,650 in 2012 with a further gain in 2013 to 56,550.
• The average resale price will rise by over two per cent to about $363,700 in 2012 followed by similar gain to $372,300 in 2013.