Market Update – There are conflicting stories floating around out there relative to the state of the market. Apparently some folks are putting a rosy glow on things and while I think it is important to be optimistic, we must also be honest and believable.

It’s very difficult to explain to our sellers why their houses aren’t selling when while making public statements that the market is taking off when that is not quite yet obvious. Red Deer sales to April 15th are almost 25% under where they were last April at this time (and last April was not a great month). Listings are up 5% over last year and we don’t see signs of a booming market anywhere.

We have been hearing plenty about the hot real estate market in Canada lately. It hasn’t arrived here yet because the energy sector that we are involved in locally is not fully back on its feet, but there are definitely signs that things will change over the next year.

First, Ft. McMurray is booming which is probably why the market in Calgary is getting better (head office city). The expected economic benefit for all of Alberta is massive.

Second, the world economy is slowing improving – the stock markets being the best barometer.

Third, there is a new oil boom happening in the foothills of Alberta in the 50 year old Pembina field. It seems the same shale recovery technology that has driven our gas prices down can be used to recover an additional 5 billion (or so) barrels of sweet light crude from shale formations right here in Alberta. A huge boon for our local drilling and service companies.

There is no question that Alberta will again some day be a world leader in every way. The fundamentals haven’t changed. We still have all that oil and gas.

So, when will the market improve? I don’t believe we will experience a strong real estate market for at least a year. Why? Well, when some of those employed in the energy sector do get back to work, it will take a little time for them to catch up and feel comfortable enough to spend on the large ticket items.

The world economy is still fragile. The American economy is even more fragile and the US is still our largest trading partner. Our dollar is at par which makes American demand for our goods weaker. The US housing market is still in a shambles and billions of dollars that would normally get spent in our local markets are heading south to take advantage of those bargains.

Interest rates are rising. An interest rate increase is the same as a price increase, except it’s the banks profiting instead of homeowners.

Our prices are off only about 10 – 15% from the peak in 2007. There isn’t a lot of room for inflation before houses become less unaffordable again.

The best housing market is one that is balanced, with inflation that matches the annual inflation rate, where there are enough homes to choose from and adequate buyers for the available inventory. And that’s what I’m hoping for in 2010.

The real estate market in central Alberta has not yet experienced the supply shortages and increasing demand we have been hearing so much about in the news. That phenomenon seems to be limited to Montreal, Toronto and Vancouver and is quite likely the result of very low interest rates and a sharp drop in new home construction over the past 2 years.

Very simply, real estate prices are dictated by the Supply of homes for sale and the number of buyers competing for those homes (Demand). When Supply increases and Demand doesn’t, prices will fall. When Demand increases and Supply doesn’t keep pace, prices will Increase. If Price increases and Supply keeps pace, Demand will decrease as affordability lessens. If Price decreases and Supply remains stable, Demand will increase. An increase or decrease in interest rates has the same effect as increase or decrease in Price. While all of that may seem a little confusing, understanding the Law of Supply and Demand will truly help us to interpret the local real estate market.

In most central Alberta markets, activity in the last two weeks of February slowed considerably which we can only attribute to all Canadian’s fascination with the Vancouver Olympics.

Red Deer – the number of active listings (Supply) is 600 – down 5% from the same time in 2009 and sitting at a level that we believe is about right for a city of 90,000 people. February sales were even with the same period in 2008 at 114, but year to date sales are up almost 15% over last year. The ratio of listings to sales in February was almost 23% representing the most stable market in our area, almost a balanced market which is defined by CMHC as 25 – 30% turnover each month.

Sylvan Lake – Active listings have stabilized and are about the same as last year at this time.  February sales are unchanged from February 2009 at 16. Year to date sales in Sylvan Lake are down 20% over the same period in 2009. The ratio between listings and sales in February was 10% indicating the same market conditions as our other centres where the buyer has an advantage.

Lacombe – Active listings (Supply) are down slightly from last year at this time while February 2010 sales were down 27% from February 2009. Year to date sales to the end of February 2010 are down 33% over the same period last year.  The ratio between listings and sales in February was about 10% which indicates the market still favours buyers.  Once the ratio between supply and demand reaches 25 – 30%, the market again favours sellers and prices will start to firm up.

Ponoka – Active listings (Supply) are down almost 20% from the same period last year.  February sales are unchanged from February 2009. Year to date sales in Ponoka are down 33% over the same period in 2009. The ratio between listings and sales in February was less than 10% suggesting there is still a strong advantage for buyers in this market.  Prices will not increase in this environment until the number of sales relative to the inventory increases substantially.

All in all, the central Alberta market appears to be languishing a little behind the rest of the country.  This can easily be attributed to a slower energy sector which now appears to be recovering somewhat.  With that recovery we can expect the real estate market to firm up some, but we don’t expect to see much gain in prices for the next few months.