February 15, 2012 – Market Report

Fri, 24 Feb by Dale Russell

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 – 1st 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.

 

January 2012 – Market Update

Mon, 06 Feb by Dale Russell

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.