Red Deer sales were up slightly over August’s while our active listing inventory slipped slightly.  The ratio between Supply and Demand for homes in Red Deer is just under the 30% mark which means we are close to being in balance – where neither the Seller or Buyer has an advantage.

The overall central Alberta market has improved over August’s.  The market has recovered from a slower August that we suspected may have been caused by changes to the mortgage rules.  The stronger September market may have been caused by tenants turned first time buyers escaping rising rents and a shortage of rental accommodations. The number of active listings is generally lower than last year, bringing the sales to listing ratio closer to balance, but still in Buyer’s market territory in most markets.

That means that prices will remain stable for the near future and won’t increase until that ratio gets well above 25%.  The possibility that could happen in the next few months seems very real, based on the Alberta population growth information below.  The stabilizing factor is new housing.  As people move to Alberta, new houses are built and as long as the construction industry can keep up, housing supply and demand will remain in balance.

Excerpts from Alberta Treasury Branch – Weekly Economic Bulletin – Sept 28/2012

Alberta bound – Statistics Canada came out with population estimates this week for the period of June 2011 to 2012, showing
that Canada’s population hit 34.9 million people. This was mostly thanks to immigration, at 260,000 people. For the past decade, Canada has been accepting between 240,000 and 270,000 immigrants annually, a rate that is the main reason the population is increasing. The natural rate of population growth (births minus deaths) has been in the range of 130,000 to 140,000 over the same period.

Alberta’s population continues to not only grow the fastest in the nation, increasing 2.5 per cent (the national average was 1.1 per cent), but also remains the youngest, with a median age of 36.1 years (the national average age is 40). As well, interprovincial migration picked up over the period, with 28,000 Canadians relocating to Alberta. International migration also picked up substantially, hitting a record 34,500 individuals.

And Alberta inbound – Given that Ontario is by far the largest province in Canada by population, it’s not surprising that it also
provides the bulk of Alberta’s inter-provincial migrants. Last year 10,700 Ontarians got on the Trans-Canada highway and headed west. In contrast, net-migration from Saskatchewan, historically a major source of labour in Alberta, was very low, at 454 individuals.

Contrary to popular belief, neither Atlantic Canada nor Saskatchewan has contributed the most to Alberta’s net gain in population. Over the past decade Alberta’s net balance of population with Ontario increased 91,000, which is more than the number of the combined increase from Atlantic Canada and Saskatchewan (at 52,500 and 24,600, respectively).

Regardless of an individual’s place of origin, the human pipeline to Alberta represents good news for the local real estate markets, as these new Albertans need to be housed, and for the provincial labour market, as it keeps things from overheating too quickly.

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.

Red Deer sales in August were down almost 18% from July.  Sales in the starter market (up to $300,000) were down 33% which is likely the result of tightened mortgage qualifying rules imposed earlier this year.  The rental market is showing signs of strain with very low vacancy rates and rapidly increasing rents.  That pressure is likely to translate into more started activity going into the fall.

On the other hand, sales at the higher end of the price spectrum ($400,000 +) have been much stronger this summer than last.  Buyers for those homes are probably less impacted by the mortgage rule changes and are finding good value for their money.

Generally, the market is much slower this summer than it was in the spring with sales to listing ratios trending back to buyer advantage territory.  More building starts this year have helped keep demand from overwhelming supply as in-migration into Alberta from other provinces continues to be strong.

Excerpts from Aug. 31/12 ATB Financial Weekly Economic Bulletin by Todd Hirsch & Will Van’t Veld

Canadian GDP chugs higher – One of the most reliable and closely watched indicators of economic activity is the quarterly national accounts, which measures the gross domestic product. On this final day of August, we learn that the Canadian economy keeps chugging along—slowly but surely.

The total value of all goods and services produced in the Canadian economy grew by 1.8 per cent in the second quarter of 2012 (adjusted for inflation), according to the latest release from Statistics Canada. That slightly exceeded the 1.6 per cent expansion predicted by a consensus of economists.

Speaking to the media this morning, Canada’s Finance Minister Jim Flaherty said: “We have now witnessed four straight quarters of economic growth. While the growth is modest, it reinforces Canada’s positive economic track relative to other countries. Indeed, Canada continues to have the strongest economic growth of all of the G7 industrialized countries.”

There is no quarterly breakdown available for the provinces, but Alberta’s energy sector may have been one of the contributors to the country’s overall growth. Statistics Canada reports that “oil and gas extraction increased 1.0% in the second quarter, as an increase in crude petroleum production was partly offset by a decrease in natural gas extraction.”   The relatively good news for the economy lifted the Canadian dollar this morning, which was up almost half a cent against the U.S. dollar.

However, the growth will not be strong enough to convince the Bank of Canada to raise interest rates. With very little inflation pressure building, and only modest growth, there will be no appetite building at the Bank to hit the button on rate increases until well into 2013.

U.S. economic update – Economic growth in the United States came in slightly better than expected in the second quarter, at 1.7 per cent. This was down from 2 per cent in the first quarter. Most GDP components were slightly slower in the second quarter, which was expected, but net exports came in more positive and government spending decelerated less than it did in the first quarter.

U.S. housing continues to be a good news story, with the influential Case-Shiller Home Price Index increasing 1.2 per cent on a year-over-year basis in June, the first time the indicator has turned positive since the 2010 home-tax buyer credit. The Case-Shiller index measures the change in home prices that have been sold at least twice.  In other news economic news, U.S. personal consumption expenditures and disposable income for July came in fairly strong, increasing 0.4 and 0.3 per cent, respectively. This was the fastest consumption
expenditures increased in five months. On a less optimistic note, new jobless claims benefits have remained relatively flat, indicating that employment has yet to pick up significantly enough to reduce the unemployment rate.

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.

Month to date July sales in Sylvan Lake just about the same as the same period in July in 2011 and also the same as the first two weeks in June, while Red Deer sales have slowed compared to last month and last year.

It’s hard to understand why local markets can be so different, but it is possible that the smaller centres are finally catching up a little with Red Deer.

The world economic situation seems to have stabilized slightly in the past few weeks and the price of oil has held just above $80.  That is good news for central Alberta and as long as those indicators remain stable, we expect our real estate markets to be stable as well.  The Red Deer and Blackfalds markets still favour sellers and the Lacombe, Sylvan Lake and Ponoka markets favour buyers.

Excerpts from ATB Financial Weekly Economic Bulletin – July 13, 2012

Mixed housing market signals – Regulatory changes geared at cooling the housing market came into effect this week—but data on how much the market was already cooling in recent months, is providing mixed signals.

Last week sales data showed a precipitous drop in June, while this week construction data came in relatively strong, with strong housing starts and new home price data.

Year-over-year the new home price index rose 2.4 per cent in May. This was driven mostly by Toronto, where prices rose 5.5 per cent (in Alberta new home prices were flat).

Housing starts data for June was also surprisingly strong coming in at a seasonally adjusted annual rate of 222,700 units—that’s about 5 thousand more than May’s number.

Total starts in Alberta were 31,100 in June, steady from starts in May.  Starts in our province’s two major cities made significant jumps, with Calgary numbers 65 per cent higher than in 2011 and 46 per cent higher in Edmonton.

2011 Natural Gas – Anyone who follows the natural gas market would probably like to forget 2011. For that matter, the first half of 2012 as well. The folks at the Energy Information Administration (EIA) aren’t in the business of forgetting however, publishing a year-end review for natural gas in 2011 this week.

The EIA charts a disastrous year for 2011 in which average prices dropped to $3.98/MMbtu from 2010’s $4.37/MMbtu.  This was due to record high production and storage levels, which pushed the price even lower through 2012.  Why did production keep rising despite rock bottom prices? The EIA attributes this not only to the cheap abundance of shale gas, but the desire of drillers to drill for crude and other projects that produced natural gas as a by-product.

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.