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.

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.

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.