Central Alberta Market Update – Sept 30, 2010

We’ve seen lots of good economic news in Alberta this year and it’s evident in an improved real estate market in central Alberta.  MLS sales from Jan 1, 2011 to Sept. 30 for the area served by the Central Alberta Realtor’s Association are up over the same period in 2010 by 18.27% and that number is generally reflected in most of the municipalities we service with the exceptions of Sylvan Lake (0% change) and Lacombe (+8.4%).

The biggest reason for the improvement lies in the population growth identified below.  People go where the jobs are and Alberta seems to have the best job creation record in the country at the moment.

While sales are up, the relationship between supply and demand hasn’t improved enough to cause prices to change.  In fact, prices could be down a little at the middle to high end of the price spectrum since last year.  Supply and demand balances vary by price range and the low end of the price spectrum is much closer to balance than the high end.

Growing Population – ATB Financial – Weekly Economic Bulletin – Sept. 30/11

Alberta’s population numbers shot up in Q2 2011, according to new Statistics Canada data released this week. The overall provincial population grew by 0.59% in the second quarter, the highest rate since the fourth quarter of 2008. The main driver behind the surge in population growth was a jump in net-international migrants to 8,313, up from only 3,708 in Q1. The province also saw strong levels of interprovincial migration with 4,720 Canadians moving here. Natural increase (births minus deaths) added another 8,190 new Albertans.

A growing population is one of the main factors driving the Alberta economy forward. During the boom years, Alberta’s population grew by as much 99,000 people per year, while even in 2008 and 2009 (which were not strong years economically) the province welcomed nearly 80,000 new residents. The rising population helps fuel growth in a wide range of industries including construction, retail and housing.

There Is Good News in Alberta – people are moving here in numbers not seen since 2006 and the reasons are pointed out below.  Low unemployment, higher wages, and relatively affordable house prices are all strong motivators to entice people to move here.

Population growth is a huge contributing factor to economic stability in Alberta.  It creates jobs and supports the housing industry.  It provides workers to replace the huge number of baby boomers getting set to retire in the next few years and since most of those moving here are young, it creates new households and natural growth through childbirth.   We welcome all those who are considering making Alberta home.

Canadians Still Looking Towards Alberta – Dan Sumner, Economist, ATB Financial

With talk of labour shortages returning to Alberta, population growth and migration are important variables for the provincial economy. And according to second quarter 2011 figures, Alberta continues to gain citizens from other Canadian provinces.

A total of 4,720 Canadians relocated to Alberta during the second quarter of 2011, largely unchanged from the 5,275 that moved here during Q1. Alberta is on pace for roughly +20,000 net-interprovincial migrants in 2011, which if achieved will be the highest annual pace for net interprovincial migration since 2006.

During Q2 Alberta continued to have the largest net migration gain from Ontario, while losing the largest number of net migrants to Saskatchewan. Alberta was by far the largest benefactor of net-interprovincial migration in Canada in Q2, with the province in second place (Saskatchewan) gaining only 1,239 net migrants.

Interprovincial migration can be a difficult variable to predict; however, with the unemployment rate lower in Alberta, wages higher, housing prices relatively affordable and the provincial economy expected to grow among the fastest in the country, it’s hard to imagine that more Canadians won’t be calling Alberta home over the near future.

While more skilled workers is essential for the continued development of Alberta’s economy, it also puts pressure on social and institutional resources. As a former premier of this province once stated, “when people move to Alberta, they don’t bring their schools and hospitals with them.”

 A stable housing market requires a stable job market and it appears Alberta is improving in that category.  Jobs bring people to Alberta which creates demand for new construction, which in turn creates more jobs.  People who are confident in continued employment are much more likely to make large buying decisions (like homes). 

Long-Term Unemployment Picture Improves – Dan Sumner – Economist, ATB Financial

Alberta’s labour market has made huge job gains so far in 2011, adding just over 55,000 jobs since January. But even more encouraging is that long-term unemployment, which remained stubbornly high after the recession, has started to come down.

The average duration of unemployment in the province was 14.6 weeks as of August, while in July it was only 12.3 weeks. This marks the first time since the spike in the average length of unemployment occurred during the downturn that the indicator has been below 15 weeks for two consecutive months.

Nationally, the duration of unemployment was 18.8 weeks as of August. The average length of unemployment also increased in Canada during the recession, but unlike Alberta there has not been much in the way of improvement this year (see graph).

Long-term unemployment is much more serious than short-term, as being unemployed for a long time can lead to a self-reinforcing cycle of unemployment. This can then lead to skills atrophy and longer-term social problems such as health issues and homelessness.

One main reason behind the drop in the average length of unemployment in Alberta is that youth employment has finally started to make some gains in 2011. Employment among individuals aged 15-19 reached a two year high in August (seasonally adjusted) while employment among individuals aged 20-24 has increased by 10,000 this year.

Also, employment in regions of the province which were slower to recover after the downturn (such as Grand Prairie) picked up recently. The fact the employment gains are trickling down to these segments of the labour market speaks to the broad improvement the Alberta economy has experienced recently.

Great News from Alberta Treasury Branches

 Jobs Train Keeps on Rolling – by Todd Hirsch, Senior Economist – Alberta Treasury Branch

 It may have been at a more modest pace than what we saw earlier this summer, but Alberta wrapped up a stellar season of job growth with more people working in August.

According to Statistics Canada’s latest employment survey, 6,600 new jobs were created in Alberta last month. That caps off the fourth consecutive month of job gains, and brings the 12- month increase to 86,000 new jobs (+4.2%).

Due to an even sharper increase in the number of people entering the labour market, Alberta’s unemployment rate moved up slightly to 5.6%. Nationally, there was a net loss of 5,500 jobs, and the unemployment rate rose to 7.3%.

Given the global economic slowdown currently gripping much of the developed world, Alberta’s job market continues to defy gravity. Of the 86,000 jobs created in the last year, virtually all of them have been full-time positions.

High oil prices have been credited with boosting Alberta’s economy this year, yet ironically, jobs in the energy and resources sector slipped the most in August (-12,200). There were also fewer positions in educational services (-4,800). These were more than offset by increases in manufacturing, and throughout the services sector.

Even if employers take a bit of a breather in the fall, Alberta remains the most active job market in Canada. That should support other important economic industries such as retail sales, and it will also probably lead to higher inter-provincial migration activity as job seekers from other parts of the country turn their attention westward.

The housing market may already be seeing some welcomed relief as increased employment and consumer confidence among Albertans will help drive new housing starts.

Residential Construction in an Upswing?

In contrast to other sectors of the provincial economy Alberta’s residential construction sector has not had a great showing in 2011. However, recent data from Statistics Canada and the Canada Mortgage and Housing Corporation (CMHC) shows that the industry may be picking up. Actual housing starts surged in August to 27,400 seasonally adjusted, annualized units—the fastest pace for starts since March of last year. But the good news doesn’t end there. Residential building permits—which provide insight into the future direction of housing starts—surged to $641.6 million in July, their highest monthly amount since February 2010! Non-residential construction permits, which have fared better since the recession than residential, also rose in July, up 7.9% from June.

Since the recession, activity in the provincial construction sector has been slow to rebound. One of the main culprits behind this is an oversupply of multi-family dwellings (mainly condominiums), which has kept overall residential construction activity subdued. Although reading too much into one or two months of data can be deceiving, the surge in both starts and permits over the summer is probably a sign that some of the strength observed in other sectors of the economy (e.g. the energy sector) is starting to have feed-through effects on other sectors like residential construction.

A fragile world economy isn’t having a big an effect in central Alberta yet.  Our market cautiously continues in positive territory with year to date sales ahead of 2010.  Central Alberta Realtor’s Association statistics show year to date sales across the region up 18.1% over the same period last year and every local market we track is up except Sylvan Lake which is down very slightly (3.8%).

There is no question that shale oil activity along the eastern slopes of the Rocky Mountains and development in the oil sands are the two driving factors.  It appears that the US government is close to approving a pipeline to move large amounts of oil from Ft. McMurray to Texas.  Increased activity in the oil sands is also helping our natural gas industry because separating the oil from the sand requires large amounts of natural gas.

The other direct benefit of the shaky world economic situation to our housing market is low interest rates.  Low rates will stay around as long as the economic growth of our trading partners is slow.  It is difficult for the Bank of Canada to raise our rates when other countries are forced to keep theirs low to stimulate economic growth.  Raising our interest rates would increase the value of the Canadian dollar which is already trading higher against the US dollar than it should be to keep our exports affordable.

It is a great time to buy a home.  The overall market still favours buyers in many ways – there are lots of homes to choose from, prices are still low compared to the 2006 and 2007 boom market and record low interest rates continue to make home ownership affordable.

Red Deer – year to date sales are up 13.1% over the same period in 2010 – demand is up.  The number of active listings at the beginning of September are down 20% this year compared to last – supply is down.  The sales to listing ratio in August was 22%, almost in the 25 – 30% range that represents a balanced market – the market balance slightly favours buyers.

Lacombe – year to date sales are up 8.2% compared to last year – demand is up.  The number of active listings at the beginning of September is just slightly higher than last September – supply is equal.  The sales to listings ratio in August of this year was 18.5%, up slightly from July – the market favours buyers.

Ponoka – year to date sales are still up 24% over the same period in 2010 – demand is up.  Active listings are 19% higher than Sept., 2010 – supply is up.  The sales to listings ratio in August was 13.5%, a 2% improvement over July – the market still favours buyers.

Sylvan Lake – year to date sales are down 3.8% over the same period in 2010 – demand is down slightly.  Active listings in September  were the same as September, 2010 – supply is even.  The sales to listings ratio in August was 8% – the market heavily favours buyers.

Blackfalds – year to date sales are up 25.5% compared to the same period in 2010 – demand is up.  Active listings on Aug. 1 were equal compared to September 2010 – supply is equal.  The sales to listings ratio in August was 19.3% compared to 13.6% in July of this year – the market still favours buyers but is showing strong gains back to balance.

The relationship between supply and demand in the acreage market continues to heavily favour buyers, but August sales activity was promising with 10 acreage sales in central Alberta over $500,000.

Our Other Economy

We analyze and discuss the energy industry endlessly for signs that all is well in central Alberta.  But, there is another, very important economic influence in central Alberta that we often overlook.  Farming has been a major part of our local economy since Alberta was settled in the late 1800’s.

When farmers do well, the income they generate trickles into the economy in numerous places and helps fund an abundance of service jobs.  World grain production has slipped in recent years while demand has increased with population growth.  Like all commodities, when supply decreases and demand increases, prices go up. 

Alberta Farmers Anticipate Strong Crop Production – ATB Financial

Farmers in Alberta expect to harvest larger amounts of wheat and barley compared to last year, as well as a record amount of canola. Statistics Canada reported on Wednesday that according to a survey of 15,200 farms conducted between July 25 – August 2, production of all three principle crops in Alberta (spring wheat, barely and canola) is expected to rise from last year. This rise in production is thanks partly to hot, dry weather that has offset production losses due to adverse weather conditions at the start of the year. Total wheat production is expected to rise 3.8%, while barley and canola production are expected to climb 6.5% and 6.0% respectively.

This year is gearing up to be a strong crop year for many farmers in Alberta as relatively positive growing conditions across most regions of the province combined with fairly robust prices may lead to healthy jump in crop receipts. The healthy harvest in Alberta is positive news not only for farmers but also the entire Alberta economy as a strong influx of cash from crop receipts will have positive trickle down effects on the broader economy. Farmers in Saskatchewan also expect crop production to rise year despite a tough start to the 2011 crop year. Farmers in Manitoba, however, expect large declines in production of all three crops as very wet weather conditions prevented many farmers from getting their crops seeded.

Is Your Glass Half Empty or Half Full?  We are bombarded daily with bad news from all over the world.  Consumer confidence is directly impacted by that media.  Consumers make lifestyle decisions based on how they feel.

There is always good news and positive events going on in our world, especially in Canada and Alberta.  We are truly blessed to live here and benefit from the rich resources we own just because we live here.  If we look for the good news and try to look at the glass as half full, our lives will be more happy and fulfilled than those that choose the other option.

Prices Down In July, by Todd Hirsch, Senior Economist, Alberta Treasury Branches

Even small bits of good economic news are welcomed these days, and that news was delivered by Statistics Canada’s report on the Consumer Price Index this morning.

Prices for typical consumers rose by 2.7% year-over-year in July, down from the 3.1% annualized advance in June, and 3.7% in May. The national CPI increased in June primarily because of higher prices for gasoline and food purchased from stores.

In Alberta, annual consumer price inflation also eased up a bit, falling to a year-over-year increase of 1.9%. Many of the factors that drove prices higher nationally were present in Alberta as well. Energy prices rose 14.1%, and gasoline jumped by 23.0%. Food prices also rose, especially fresh vegetables (+7.7%) and meat (+6.5%).

Helping keep overall inflation in Alberta in check were price decreases for women’s clothing (-9.0%), footwear (-5.2%), and purchasing and leasing of new motor vehicles (-2.7%).

The softer inflation figures nationally will certainly support the Bank of Canada’s likely decision to keep interest rates where they’re at for an extended period of time. With all of the other more troubling economic headwinds hitting the Canadian economy from the US and Europe (see Economically Speaking), the Bank of Canada must be viewing the tame inflation figures with some sigh of relief.

On the other hand, the fact that inflation appears to be ebbing in Canada could also be considered one more piece of bad economic news. It does suggest that consumer sentiment is perhaps waning a bit, prompting shoppers to hold back on purchases and forcing retailers to slash prices. For every glass that is half full, the other half is still empty!

We all know that oil and gas exploration and production form a very large and important part of the central Alberta economy and the price of oil and gas dictate the amount of activity our local energy industry participates in.

Any time the world economy falters, oil and gas prices are affected.  It’s a constant guessing game to know where prices will be next week and next year.

Fortunately, the last couple of paragraphs below offer some hope for continued stable prices and therefore a stable local economy.

Oil Price Swing by Todd Hirsch, Senior Economist, ATB

Albertans are used to watching the price of crude oil rise and fall, but even seasoned veterans of the oilpatch were paying attention to the wild price gyrations witnessed this week.

Based on the price of West Texas Intermediate crude, a benchmark commodity traded and priced on the NYMEX, oil prices have fallen nearly 20% over the past few months. After hitting a recent high of $US 113 per barrel back in April, this week oil fell to below $US 80. If prices stayed below this point for a long period of time, some of Alberta’s oilsands projects may be reconsidered—or possibly shelved.

Behind this recent price volatility are several factors. The downgrade on US government credit sent shockwaves through markets all around the world, including stock markets and commodities. Oil was one of the casualties (although gold hit record highs).

Also, revisions to US economic data show that the 2008 recession was far deeper than first thought. And numbers for 2011 are not encour-aging. The prospect of another recession in the US economy helped push oil prices lower.

By the end of this week, oil prices had recovered to above $US 86 per barrel (at noon trading). The volatility in stock and commodity prices this week is not necessarily being driven by market fundamentals, but rather by fear and uncertainty. That will subside.

On the supply side, nothing has changed. Oil is still costly to dig out of the ground. And emerging economies such as China and India still need plenty of oil (for now, at least). This suggests that once this recent bout of market volatility calms down, oil prices will calm down too, and should continue trading between $80-$100 over the coming months.

The central Alberta real estate market is chugging along about how we expected.  Until now sales have been up or at least equal to last year’s in most central Alberta markets.  It’s hard to predict how the most recent economic turmoil will affect the market, but there is always a silver lining – interest rates should remain low, keeping housing affordable.

Generally, the market is most in balance in Red Deer with the outlying areas still favouring buyers with ample supply and mediocre demand.  People moving to the area generally start in Red Deer where most of the jobs are.  There is still ample inventory in Red Deer and higher gas prices may be keeping people close to their jobs.

The majority of sales activity still happens in the lower price ranges.  The upper end market continues to heavily favour buyers with ample supply and low demand which creates opportunity for those families looking to move up.

We believe the slight improvement in the market generally can be attributed to a more active oil industry that has caused population growth – increased demand.  New housing starts this year are lower which has helped keep the supply side of the market from getting too large – stable supply.

Very simply, the relationship between supply and demand dictates price movement and the health of the housing market.  CMHC defines a balanced market, where neither buyers or sellers have an advantage, as one where 25 – 30% of the inventory sells each month.

Red Deer – year to date sales are up 9.24% over the same period in 2010 – demand is up.  The number of active listings as of the first of August were down 20% this year compared to last – supply is down.  As a result, our sales to listing ratio in July was 22%, not quite high enough to support price increases, but much closer than we were a year ago – the market balance slightly favours buyers.

Lacombe – year to date sales are down slightly compared to last year – demand is down.  The number of active listings on August 1^st were the same as they were last August – supply is equal.  The sales to listings ratio in July of this year was 17% – the market favours buyers.

Ponoka – year to date sales are up 24% over the same period in 2010 – demand is up.  Active listings are 9% higher than Aug. 1, 2010 – supply is up.  The sales to listings ratio in July was 11.5% – the market favours buyers.

Sylvan Lake – year to date sales are the same as 2010 – demand is equal.  Active listings on Aug. 1 were up 8% compared to Aug. 1, 2010 – supply is up.  The sales to listings ratio in July was 11% – the market favours buyers.

Blackfalds – year to date sales are up 25% compared to the same period in 2010 – demand is up.  Active listings on Aug. 1 were equal compared to Aug. 1, 2010 – supply is equal.  The sales to listings ratio in July was 13.6% – the market favours buyers.

The acreage market closely resembles the rest of the market with a sales to listing ratio of about 10%.  Sales at the high end of the price range are rare with most of the activity at the low end of the price spectrum.

The Economy is Still Fragile – thankfully the US government seems to have resolved their debt ceiling dispute which was causing economic concern around the world.  As you can see by the article below, Canada’s economic stability is still tenuous.  The good news is that the spring slowdown in economic growth is predicted to be temporary.  The other good news is that interest rates will likely stay low for a while longer, keeping housing affordable.

 May Brings Showers – Dan Sumner, Economist TD Economics

 Although it had been widely expected that the Canadian economy would pull back in Q2, preliminary indications are looking even more negative than the market predicted.

 Canadian gross domestic product – the principle measure of overall economic activity – shrunk by 0.3% in May. That’s the largest monthly decline since May 2009, when Canada was mired in recession. The reading was much worse than the +0.1% growth called for by a consensus of economists, and signals that after expanding by 3.9% in Q1, the Canadian economy has really slowed down in Q2.

Although GDP information at the provincial level is only available on an annual basis, considering the largest driver to the downside at the national level in May was the mining, oil and gas extraction sector, the report doesn’t look good for Alberta. GDP in that sector plummeted 5.3% in May; however, the decline appears to largely be due to temporary factors like the slow spring beak up and wildfires in northern Alberta.

Other sectors dragging on economic growth in Canada in May were manufacturing and construction, while most service sector industries expanded during the month.

This morning’s report definitely surprised the market to the downside and taken along with the pull back in inflation observed last week, leaves room for the Bank of Canada to keep rates unchanged at its next meeting on September 7. However, as is often the case with monthly statistics, the overall trend in the Canadian economy appears to be clouded by one time events in this report.

The Canadian oil industry (and the resource sector in general) is an engine of growth in the Canadian economy right now, and over the next month or two, GDP will probably bounce back as the temporary factors weighing on GDP in May dissipate.