2011 Year End Market Update – 2011 was a much better year than 2010 with MLS sales in central Alberta up 19.5%.  We are still a long ways from the 2007 boom at only at 73% of that year’s heady levels, but 2011 did get back to 2009 sales levels. 

At the same time our inventory of active listings has steadily dropped in most markets but especially in Red Deer, trending closer to balanced market conditions than we’ve seen in three years.  We are not back to that perfect balance yet, but if the current trend continues we could see those conditions later this spring. 

Everyone wants to know what prices are going to do.  Future predictions are very dangerous, but a simple law of economics states that when demand increases and supply decreases, prices will go up.  We have seen the relationship between supply and demand diminish over the last six months and know that a continuation of that trend will eventually see prices firm up. 

Our analysis of the median price of homes sold in Red Deer, Lacombe, Sylvan Lake, Ponoka, Innisfail, Blackfalds and Penhold over the past year shows that prices went down in the spring and summer and increased slightly the last six months.  The median price of homes in those markets is still down approximately 9% from the high in the second quarter of 2007.  While the median is not always and accurate representation of value, it does show us trends.  We believe the trend right now is up barring an economic collapse in Europe or the United States.  High oil prices continue to be the key factor in our economic well being. 

Red Deer – 2011 sales were up almost 13% over 2010.  Active listings as of Dec 31 this year are down an incredible 42% over Dec. 31, 2010.  The December sales to active listing ratio was 20.2% down from the previous month but probably just a reflection of a typically slower Christmas season. 

Lacombe – 2011 sales were up 8.4% over 2012.  Listings were slightly higher at the end of 2011 and the ratio of sales to active listings is currently 14% representing a market where the buyer still has an advantage. 

Sylvan Lake – 2011 sales managed to eke out a 1.9% increase over 2010.  Active listings as of Dec. 31, 2011 are finally trending down by 17% over 2010.  The sales to active listing ratio at only 5.6% suggests the Sylvan Lake market still heavily favours buyers.

Ponoka – 2011 sales were up 34% over 2010.  Active listings are about the same level as they were a year ago.  The sales to active listings ratio was down in December due to the Christmas slowdown, but still suggests a buyer’s market.  We expect to see a more balanced market in the spring. 

Blackfalds – 2011 sales are up 27% over 2011.  Active listings at Dec. 31, 2011 are down 22% from Dec. 2010.  The December sales to active listings ratio was 13.5% – still a buyer’s market, but the Blackfalds market is following Red Deer’s lead and quickly trending towards balance.

May 18, 2010

Market Update to May 18/11 – Sylvan Lake & Area
Active Listings Sales
Price Range Active Today Pending Active 1 Year Ago Sold MTD
May 11/11 Sold MTD
May 18/11 Sold MTD
May 18/10
0 – 100 6 0 2 1 1 0
100 – 150 8 1 6 0 0 0
150 – 200 20 0 15 2 2 1
200 – 225 11 0 9 0 0 2
225 – 250 21 0 13 3 3 0
250 – 275 21 3 21 3 3 2
275 – 300 31 3 30 0 1 4
300 – 350 38 1 38 1 2 4
350 – 400 26 1 25 2 2 1
400 – 450 13 0 26 0 0 2
450 – 500 17 0 17 0 1 0
500 + 58 1 68 1 2 1
Total 270
10
270
13
17
17

Days On Market 69 67 53 54 41

We All Want the Value of Our Homes to Rise, but that’s not always a good thing. Remember the heady days of spring 2007 when house prices were inflating $10,000 a month. It seemed like a financial windfall at the time, but the long term results suggest otherwise.

When prices inflate rapidly, those folks forced to buy at the high point of the market will be hurt when prices normalize. Alberta is currently experiencing the highest level of mortgages in arrears in Canada as some of those who purchased at the peak find themselves “under water”. In other words, the value of their homes is less than their mortgage. Any of these people wanting to move are in a very difficult position and those who experience any short term financial difficulty are not in a position to ease the situation by selling their homes.

Quite simply, the value of residential real estate cannot increase faster than the consumer’s ability to pay for it, or our market will suffer. If prices increase back to the levels we experienced in 2007, we could price ourselves out of the market. It would make it more difficult to attract new people to move here and fill those job vacancies we are expecting in the next few years. It will create slowdowns for local construction companies and therefore less employment in one of our most important industries.

In other words, be careful what you wish for. A healthy economy and housing market are characterized by balance in supply and demand and prices that will attract people to Alberta who can afford to buy homes and not have to spend the majority of their incomes on housing.

New Housing Prices Flat in Alberta – Alberta Treasury Branches – Weekly Economic Update – May 13, 2011

The cost of a new home continued to move sideways in Alberta’s two main cities in March 2011. In month-over-month terms, the price of new home dipped by 0.1% in Calgary and by 0.2% in Edmon-ton; compared to a year ago the average cost of a new home was unchanged in Calgary (-0.1%) and up slightly in Edmonton (+1.2%).

After surging during the boom, as resale housing prices jumped, new housing prices plateaued in Edmonton in 2007 and in Calgary in late 2008. Since then the average cost of a new home is down roughly 15% in Edmonton and 8% in Calgary. Furthermore, prices have been un-changed in Edmonton since early 2009, and in Calgary since early 2010 (see graph).

Moving forward, it is unlikely that new home prices in either city are going to make a major move either upwards or downwards. A typical trend in housing prices is that after a boom period prices move sideways for a long time.

Over the next couple years, rising interest rates will dampen demand for homes, putting downward pres-sure on prices, but a buoyant economy will support prices. Overall, these forces may roughly counteract each other making a major move in either direction unlikely.