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.

We’ve just experienced one of the best January’s in recent history.  Sales are up in every market we serve and listing inventories are not increasing the way they usually do at this time of year.

Two key factors are driving the change we’ve experienced over the last few months:

Interest rates – Investors and banks have cash and very few safe places to invest it.  One of those safe places is bonds.  When everyone wants to buy bonds, the yield goes down.  Lower bond yields pushes investors to other options like mortgages.  Several major banks have put mortgages “on sale” this month at rates as low as 2.99% for a five year term.  Rates that low are unprecedented in our history and make buying a home more affordable than ever.  The benefit of low rates will be most effective until home prices start to inflate, which they almost surely will as the gap between supply and demand narrows.

Oil prices – there is estimated to be more than 15 billion barrels of oil trapped in shale along the Alberta foothills that has previously been unavailable using conventional drilling methods.  Now, horizontal drilling and a process called fracking is making an estimated 5 billion of those barrels available and the race is on.  Central Alberta is a major centre for fracking companies who are looking for workers.

Development in the Alberta oil sands is progressing at full speed and will continue to do so as long as oil prices remain above $75/barrel.  The demand for workers far outstrips supply.  Workers are no longer required to live in Ft. McMurray, but are commuting from all over Canada, including central Alberta.

The Alberta oil sands development has also resulted in manufacturing operations in central Alberta that are very busy fabricating equipment and many of the other necessities required for remote operations.  Lots of people in central Alberta are directly employed by the oil sands but never make the trip up there.

The energy industry is very busy creating jobs.  Alberta has the lowest unemployment rate and the highest average weekly wages in Canada.  People are once again moving to Alberta, filling up the available rental accommodations and generating housing demand.  As long as oil prices remain high, that demand will grow.

Forecast – it’s impossible to predict the future, but if the current trend continues, we can expect to see house prices firming up this spring.  Obviously the world economy is tenuous and we will be affected by things that happen in the rest of the world, especially the United States.  It’s hard to believe the US economy will be running on all cylinders any time soon, but there have been some positive growth signs recently that suggest things are getting slightly better.

Economic growth in the US has the potential to drive the value of the Canadian dollar down, which is very good for our provincial government.  A lower Canadian dollar dramatically increases government revenue here.  95% of Alberta exports go to the United States and a stronger economy there, means more jobs and more economic activity.

Therefore, we expect to see a very busy real estate market in central Alberta this spring.

2011 Year End Market Update – 2011 was a much better year than 2010 with MLS sales in central Alberta up 19.5%.  We are still a long ways from the 2007 boom at only at 73% of that year’s heady levels, but 2011 did get back to 2009 sales levels. 

At the same time our inventory of active listings has steadily dropped in most markets but especially in Red Deer, trending closer to balanced market conditions than we’ve seen in three years.  We are not back to that perfect balance yet, but if the current trend continues we could see those conditions later this spring. 

Everyone wants to know what prices are going to do.  Future predictions are very dangerous, but a simple law of economics states that when demand increases and supply decreases, prices will go up.  We have seen the relationship between supply and demand diminish over the last six months and know that a continuation of that trend will eventually see prices firm up. 

Our analysis of the median price of homes sold in Red Deer, Lacombe, Sylvan Lake, Ponoka, Innisfail, Blackfalds and Penhold over the past year shows that prices went down in the spring and summer and increased slightly the last six months.  The median price of homes in those markets is still down approximately 9% from the high in the second quarter of 2007.  While the median is not always and accurate representation of value, it does show us trends.  We believe the trend right now is up barring an economic collapse in Europe or the United States.  High oil prices continue to be the key factor in our economic well being. 

Red Deer – 2011 sales were up almost 13% over 2010.  Active listings as of Dec 31 this year are down an incredible 42% over Dec. 31, 2010.  The December sales to active listing ratio was 20.2% down from the previous month but probably just a reflection of a typically slower Christmas season. 

Lacombe – 2011 sales were up 8.4% over 2012.  Listings were slightly higher at the end of 2011 and the ratio of sales to active listings is currently 14% representing a market where the buyer still has an advantage. 

Sylvan Lake – 2011 sales managed to eke out a 1.9% increase over 2010.  Active listings as of Dec. 31, 2011 are finally trending down by 17% over 2010.  The sales to active listing ratio at only 5.6% suggests the Sylvan Lake market still heavily favours buyers.

Ponoka – 2011 sales were up 34% over 2010.  Active listings are about the same level as they were a year ago.  The sales to active listings ratio was down in December due to the Christmas slowdown, but still suggests a buyer’s market.  We expect to see a more balanced market in the spring. 

Blackfalds – 2011 sales are up 27% over 2011.  Active listings at Dec. 31, 2011 are down 22% from Dec. 2010.  The December sales to active listings ratio was 13.5% – still a buyer’s market, but the Blackfalds market is following Red Deer’s lead and quickly trending towards balance.

What is a perfect real estate market?  Well, to a home buyer it might be low prices and an ample supply to choose from.  But a seller sees things a little differently.  He wants a high price.  It gets a little confusing when we are buyers and sellers all at once.

Our vision of a perfect real estate market is one where neither the buyer or the seller has an advantage.  Where price changes are consistent with inflation and housing is affordable for the average citizen.  According to the Royal Bank’s most recent housing affordability report, Alberta remains one the most affordable housing markets in Canada which may explain why folks are moving here.

Going into 2012 most central Alberta markets still favour buyers.  That means more homes for sale than buyers looking to buy.   We saw signs in the last half of 2011 that trend was changing and things are moving toward balance, but it will likely take some more time before we can expect to see prices moving up.  People are moving to Alberta at a quicker rate than in the past several years, but the builders are ready and able to provide a boost to inventory levels which will keep supply and demand in balance.

Interprovincial Migration Pulls Back in Q3 – ATB Financial Weekly Economic Bulletin

After tanking during 2009 and remaining fairly slow during 2010 Alberta net-interprovincial migration picked back up again in the first half of this year. And while Canadians continued to move here during Q3, the interprovincial migration rate fell to its lowest level of the year. 

A total of 3,136 Canadians moved here from other provinces between July and September (inclusive), down from 4,720 in Q2 and 5,275 in Q1. Despite this slowing, it is still the highest rate for Q3 net interprovincial migration since 2006. 

Through the first three quarters of this year a total of 13,131 Canadians moved here from other provinces, up from only 2,106 in 2010 and 4,369 in 2009. While migration levels are unlikely to rise significantly in Q4 (Q4 is typically not a strong period for migration for seasonal reasons) the relatively healthy Alberta economy should continue to entice some Canadians westward. Looking over the next few years, Alberta net-interprovincial migration should remain fairly strong as the Alberta economy continues to churn out more jobs, housing is relatively affordable, and has one of the lowest unemployment rates in Canada.

We have consistently pointed to the United States to predict our fortunes here in Alberta.  Lately we have heard a lot of negative news about the US economy, but it appears it is showing some surprising signs of strength lately.  Economic growth to the south is good for Alberta.  When their economy is moving, they buy large amounts of what we produce.  When their economy is moving, their dollar is stronger against ours and those things we sell them are more profitable.  Unfortunately, a stronger US dollar makes those trips to the warm south a little more expensive, but it’s

U.S. shows signs of recovery but outlook is still clouded, Barrie Mckenna, Globe and Mail – Dec. 18, 2011

Slowly and surely, the economic colossus is showing signs of recovery. On Thursday, the final estimate of third-quarter gross domestic product is due out, and it will likely confirm the economy is accelerating as the year comes to a close. Economists expect the economy expanded at a roughly two-per-cent clip, following gains of 1.3 per cent in the second quarter and 0.4 per cent in the first.

That’s all in the rearview mirror now. The consensus among economists is for even faster growth in Q4 – perhaps as high as high as 3 per cent.

For the first time in months, several key indicators are pointing in the right direction. Holiday spending is holding up well, exports are picking up, new jobless claims are steadily falling, the economy is adding jobs, consumer confidence is rising and housing is bottoming out.

“U.S.A., U.S.A. – it is interesting that all the talk is now about focusing back on the U.S.A.,” remarked David Rosenberg, the typically downbeat chief economist and strategist at Gluskin Sheff & Associates Inc. in Toronto.

But Mr. Rosenberg isn’t ready to pop the champagne. Dig into the data a bit deeper, and the bounce may not have much lift in 2012. Retailers are discounting like crazy to get shoppers to buy, consumer confidence is still in recession territory and while there are more jobs, wages are stagnating, he pointed out. And several key multinationals, such as Dupont and 3M, are warning of weaker sales in the months ahead.

The “clouded outlook” will force consumers and businesses to save more of every dollar they earn, particularly if Barack Obama is returned to the White House and a big tax grab follows in 2013, according to Mr. Rosenberg.  “Barring a pickup in income growth, rising savings rates will come at the expense of spending, which is what GDP is all about,” he said.

Most economists don’t expect U.S. growth to break through 2 per cent in any quarter of 2012.  “The U.S. economy faces a challenging backdrop fraught with risks,” according to a 2012 forecast by RBC Dominion Securities Inc.

The key, RBC argues, isn’t the American consumer. Capital expenditures and exports are likely to be the main drivers of the economy, exposing the United States to what is beyond its borders, including a predicted recession in Europe and an Asian slowdown.