Market Update- The Red Deer real estate market is behaving a little better than other, smaller central Alberta markets, and better than we would expect considering the current economic situation in Alberta. Year to date sales in Red Deer are only down 16% when compared to 2014, but are on par when compared to the same period in 2012 and 2013.  Then number of active listings is also higher than this time last year, but is not a concern unless they continue to up significantly.  Red Deer has survived the downturn nicely so far.

A comparison of the West Texas Intermediate average oil price to the number of MLS sales in Alberta since 2007 supports the premise that our real estate market is directly affected by oil prices.  The number of sales is directly correlated to oil prices when prices are dropping, but lags about a year behind when oil prices start to recover.

So, in order to know where the real estate is going, we need to know where the price of oil is going. Historically, prices have recovered within months of a slide, but this time it may take a little longer as the world struggles to rationalize an over-supply and demand that’s not keeping up.  None of the world’s major suppliers are faring very well with current prices and something will have to give.  We hope it’s sooner rather than later.  In the meantime, very low interest rates will help in keeping the market moving.

Red Deer sales to the middle of November continued their normal slower trend going into winter and the Christmas season.  While sales are lower than last November’s number, they are very average when looking at other years since 2009.

The number of active listings is where it needs to be to provide adequate choices for buyers.  This environment creates the perfect opportunity for buyers, especially at the higher end of the price spectrum – great home choices, very low interest rates and stable prices.

Housing starts moderate in October – November 9, 2015 – Todd Hirsch – ATB FinancialHousing starts moderate in October – Nov. 9/15 – Todd Hirsch – ATB Financial

New home builders in Alberta were slightly less busy last month, according to the latest data from the Canada Mortgage and Housing Corporation. Housing starts totaled 31,770 in October (adjusted for seasonality and at an annualized rate—in other words, if builders kept up this same pace for 12 months, that’s the total number of new homes that would be built in one year).

This is one of the lowest monthly numbers over the last two years, a reflection of the slower economy in our province. Still, it would be wrong to exaggerate the slow down as anything too dramatic. Over the last 12 complete months, housing starts have averaged 38,000. That’s only slightly below the average over the previous period of 41,000 (see chart).

The fact that housing starts have pulled back only moderately this year reflects the fact that the market was in a healthy balance before oil prices started to drop. Prior to previous recessions—such as 2008 and 2009—home builders had put far too many new homes onto the market. When the downturn hit, there was a surplus of unsold homes on the market, so construction pulled back more severely.

There’s still a good chance housing starts may slow a bit more towards the end of the year and into 2016.  But having gone into the downturn without having built up too much inventory of new homes helped create a good balance. So even if housing starts continue to moderate, they’re unlikely to collapse.

An unchanged new house price index – November 12, 2015 – Nick Ford – ATB Financial

An unchanged new house price index – Nov. 12/15 – Nick Ford – ATB Financial

The price of new homes in Alberta stayed unchanged for the third month in a row, showing further signs that our province’s housing market has softened.

Just released, this morning’s data shows that the index of new homes in Alberta in September remained at 100.1 (based on an index where the average price of a new house in 2007 is set equal to 100). New home prices in Alberta currently sit at the same level as last year, and are essentially the same as they were back in 2007.

The price index for new homes in Calgary in September, sat at 110.4 for the third straight month, while Edmonton’s index remained at 91.5. Since last year, new home prices in Calgary have fallen by about 0.2 per cent. Alberta’s capital is on the other side of zero, prices are about 0.2 per cent higher than a year ago.

As The Owl reported on Monday, housing starts had shown some vigour at the start of the year, but have since started to moderate. And, like housing starts, the new housing price index confirms this moderation.

Sales in Red Deer have been very consistent for the past 3 months while the number of active listings is lower at the beginning of November than it was a month ago.  The Red Deer market continues to look quite normal in spite of ongoing concern about the Alberta economy.  One explanation may be that Red Deer has diversified form an oil town to a much more broadly based economy consisting of manufacturing, services, government, agriculture and construction in addition to oil and gas.

The Canada Mortgage and Housing Forecast for the 4^th quarter of 2015 predicts that total MLS sales in the Red Deer region will end the year 15% lower than 2014, with increases of 1.0 and 1.5 percent in 2016 and 2017 respectively.  That report also predicts the average price to drop by 1.1% this year and then increase by 1.1% in 2016 and 1.3% in 2017.  In other words, CMHC doesn’t see the market changing drastically one way or the other.

Predictions are very dangerous.  No one knows what the future holds.  We do know that housing is a necessary requirement for life in central Alberta.  The decision to buy or sell should not be made based on assumptions or hopes about whether prices will go up or down.  An investment in a home is made for more important reasons and has always been profitable in the long run.  Oil prices will eventually recover and Alberta will return to strong economic growth, just like it has in the past.

September sales in Red Deer were off slightly from August’s while the number of active listings jumped, pushing the market into
buyer’s territory after several months when sellers had the advantage. The central Alberta market has fared extremely well this
year considering ATB economists are now predicting a slight contraction in the Alberta economy for 2015, and only modest
growth for 2016. The biggest reason for our stable market is that our population is still growing (a net gain of more than 8,000
people in Alberta in the 2nd quarter of this year, along with similar gains in the first quarter).
This week’s ATB Financial 4th Quarter Economic Outlook stated, “After 5 years of exceptionally strong growth, it now appears
certain that Alberta’s economy will contract in 2015. While that will be a challenge for many businesses and individuals who will
face loss of income and employment, it is not uncommon for our energy‐dependant province to face the occasional recession.
The single reason for the economic challenges this year is the drop in oil prices….. producers in Alberta have cut investments,
spending and workers…. Other major economic indicators showed some stability over the first three quarters of the year.
Residential construction was solid, wholesale and retail trade has stabilized and manufacturing has leveled off (albeit at a lower
value than a year ago).” See the entire report at www.atb.com/learn/economics

Sales in August slipped while the number of active listings increased slightly. It is likely that we are now seeing the first signs
of low oil prices in the housing market. Historically, slower sales and higher inventory levels in Alberta have occurred about
a year after a slowdown in the energy industry.
The Red Deer market has finally moved into balance after giving sellers the advantage for several months. Extremely low
interest rates have been influential in our strong market so far this year. Higher supply and lower demand will have a
calming effect on prices this fall and combined with those low interest rates, will create an ideal environment for buyers who
are not affected by the energy industry slowdown.
Opinions on where energy prices are going vary. Some believe that OPEC will reduce production while US oil reserves are
shrinking more quickly than previously forecasted. Others believe the price of oil will remain below $50 for at least another
year. Whatever the case, the world still needs vast amounts of oil every day and energy companies will adapt to their
environment. The Alberta economy does rely on a strong energy sector to fuel a “strong” economy, but we will survive this
downturn the same as previous ones and come out of it stronger, smarter and more efficient. That’s what Albertans do.

Red Deer Market Update – Sales in the first half of July were down from the same period in June which is normal. July
and August are typically a little slower months with people focused on summer activities. The number of active listings
dropped compared to the same time last month, keeping the ratio between supply and demand in balanced territory,
where neither seller or buyer have an advantage.
Sales appear to be nicely spread across the price spectrum with adequate inventory to satisfy most buyers in every price
range. The pending sales count is also down slightly from this time last month, but still well within the “normal” range.
The price range where buyers have the most options and the least competition is over $500,000.
The Bank of Canada dropped its lending rate this week by another 0.25% to 0.5% which put downward pressure on the
Canadian dollar. In the meantime, the US Government brokered a deal with Iran that would see some of their financial
sanctions eased and allow them to start producing and selling more oil into the world market. That agreement was
probably at least partly responsible for oil prices dipping very close to the $50 mark.
It seems the economy was adjusting well to $60 oil. $50 may not be high enough to keep oil companies investing in new
projects. Many of the workers laid off in January have been trickling back to work, but a protracted spell of much lower oil
prices could put them back on the sidelines. There is still much good news out there however. The Treasury Branch
article below provides proof that the Alberta economy is not solely dependent on oil prices.
Construction activity holding up – Todd Hirsch, Alberta Treasury Branch
Despite the economic downturn, the roar of bulldozers, jackhammers and cement mixers was just as loud over the second
quarter as it’s ever been in Alberta. The total value of non-residential spending was $2.73 billion from April to June,
essentially unchanged from the first quarter. Compared to the second quarter of last year, spending is actually up five per
cent.
Commercial projects—one of three non-residential building construction categories—slipped to $1.86 billion. That’s down
from previous quarters, but not dramatically so. Commercial building projects include office towers, hotels and shopping
centres, and account for the largest share of total non-residential spending. Given the current pace of construction in
downtown Edmonton and Calgary, it’s not surprising that spending on commercial projects has yet to see much pullback.
Government and institutional spending rose slightly to $512 million, the highest level since early 2011. Industrial projects
were essentially unchanged at $359 million.
While non-residential building activity has held up remarkably well during the current economic downturn, it is expected to
slip further as the year progresses. Many of these projects, particularly the large commercial office towers, were planned
and started well before oil prices started to fall a year ago. Once started, construction spending generally continues until
the project is completed—which sometimes takes several years.
Even with more pullback expected in the coming quarters, spending on commercial projects is likely to hold up reasonably
well—especially compared to the much sharper downturn in 2009.

Another strong sales month in May, up from April but down from May of last year. The Red Deer market continues to favour
sellers as a result of the number of active listings actually falling compared to last month. A lower listing count is a bit of a
surprise as is the strength in the local market considering the current economic situation. The reason may be that builder’s
spec inventory has been absorbed while fewer building starts is keeping inventories lower.
In most of the central Alberta communities we serve, the market is slower this year compared to last. However, comparisons
between the 2014 and 2015 markets can be a little misleading. The 2014 market was the busiest since 2007. In fact, the
active listing and sales counts this year are quite normal when compared with 2012 and 2013. We don’t want to minimize the
impact that lower oil prices have had on the economy, but so far we aren’t seeing it in a large way in the housing market.
Since dropping to about $45/barrel, oil prices have recovered to the $60 range. The consensus among the experts seems to
be more of the same for the rest of the year with a slight improvement in 2016. The one thing that isn’t clear is how that will
impact our economy and the housing market. It certainly won’t be as bad as it would be with $45 oil, but it would be foolish
to assume that it will be as good as it was last year. We are looking forward to a stable market for the rest of the year.

Another healthy sales month in April combined with just a slight increase in the number of active listings puts the Red Deer market in a very healthy condition going into our typically busiest time of the year.  While sales are off slightly from last year’s hectic pace, they are very normal when considering the last five years.  The number of active listings is also normal for this market and provides adequate choices for buyers in all price ranges.

The rest of central Alberta market (except Blackfalds) is also faring well with strong activity in the low to mid-price ranges and stable active listing levels.  So far we have experienced very little fallout from low energy prices, although it would be foolish to expect there won’t be some before the year is over.  It does appear that most of the layoffs have already happened and many oil companies are in good enough financial shape to keep working even with lower prices.

Oil prices have recovered back to the mid to high $50 range but most experts aren’t predicting prices over $60 until next year.  While world demand for oil is increasing, storage supplies are still growing and there are thousands of already drilled wells in the US just waiting for the prices to go up before fracking.  There is concern that once prices to up, that supply will very quickly come on the market and drive prices down again.

The Red Deer Market continued to defy logic again in March with sales that almost matched last year’s. At the end of the month there was still a large number of sales pending and strong viewing activity that suggests we could have a very good April as well.  The one slight concern is the growing number of active listings which is well above where we were last year at this time.  High inventory levels are good news for buyers and will keep prices in check this spring.

The ATB Alberta Economic Outlook just released suggests that while oil and natural gas prices are down, there are lots of bright lights in the Alberta economy.  Forestry, agriculture and tourism are all going to benefit tremendously from the low dollar, lower energy costs and better labour market. The construction industry will also benefit from those things and will be kept busy to some degree as the provincial government pushes ahead with public works projects, schools and hospitals.

The real estate and residential construction industries will undoubtedly feel the impact of lower oil prices, but will not be impacted as heavily as previous downturns.  Net immigration to Alberta is expected to reach 40,000 people in 2015 and those people will need homes.  Historically low mortgage rates under 3% combined with stable prices will make home ownership a very attractive proposition for anyone needing a place to live in Alberta in 2015.

Red Deer Market Update – Sales in the first two weeks of March have been like the weather – balmy.  And the current pending sales count indicates that total sales for the month could be well over 100 – a great start to the spring market and contrary to the negative news we have been hearing from the provincial government and the media.

We often hear “I’m going to wait for prices to come down”.  That might work for first time buyers, but if you have to sell one property to buy another, there is little logic in that statement.  If prices come down, the value of the property you have to sell is going to go come down in proportion to the one you are buying.The number of active listings is up almost 50% over the first of March last year.  That is very positive if you are a buyer, but not a big advantage if you are seller.  The advantage to buyers is obvious – more choices and the potential for better prices.  When the ratio between supply and demand falls below 25%, the advantage turns to the buyer, something we haven’t seen in the past year.

The real estate market is much like the stock market.  You never know for sure where the top or bottom is.  Warren Buffet, one of the world’s most successful investors buys on the way down and makes his gains on the rebound.  You can’t go far wrong following his example.

ATB’s Survey Shows Continued Consumer Confidence – Nick Ford – Economist – Alberta Treasury Branch – Mar. 5, 2015 The results from ATB Financial’s bi-weekly Ear to the Ground survey show Albertans remain confident and level headed when it comes to the current state of our economy.

Consumer sentiment in February’s second wave of surveying showed that almost half of all respondents (47 per cent) view the current Alberta economy as strong, an increase of two percentage points from the previous polling period. At the other end of the spectrum, 22 per cent of respondents perceive the current economy as weak, a decrease of five percentage points from the last survey.