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.

Our vision of a perfect real estate market is one where neither the buyer or the seller has an advantage.  Where price changes are consistent with inflation and housing is affordable for the average citizen.  According to the Royal Bank’s most recent housing affordability report, Alberta remains one the most affordable housing markets in Canada which may explain why folks are moving here.

Going into 2012 most central Alberta markets still favour buyers.  That means more homes for sale than buyers looking to buy.   We saw signs in the last half of 2011 that trend was changing and things are moving toward balance, but it will likely take some more time before we can expect to see prices moving up.  People are moving to Alberta at a quicker rate than in the past several years, but the builders are ready and able to provide a boost to inventory levels which will keep supply and demand in balance.

Interprovincial Migration Pulls Back in Q3 – ATB Financial Weekly Economic Bulletin

After tanking during 2009 and remaining fairly slow during 2010 Alberta net-interprovincial migration picked back up again in the first half of this year. And while Canadians continued to move here during Q3, the interprovincial migration rate fell to its lowest level of the year. 

A total of 3,136 Canadians moved here from other provinces between July and September (inclusive), down from 4,720 in Q2 and 5,275 in Q1. Despite this slowing, it is still the highest rate for Q3 net interprovincial migration since 2006. 

Through the first three quarters of this year a total of 13,131 Canadians moved here from other provinces, up from only 2,106 in 2010 and 4,369 in 2009. While migration levels are unlikely to rise significantly in Q4 (Q4 is typically not a strong period for migration for seasonal reasons) the relatively healthy Alberta economy should continue to entice some Canadians westward. Looking over the next few years, Alberta net-interprovincial migration should remain fairly strong as the Alberta economy continues to churn out more jobs, housing is relatively affordable, and has one of the lowest unemployment rates in Canada.

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.

It’s too early to be predicting much in the way of price increases, but it appears that the market is definitely stabilizing and demand is the strongest it’s been in years.  The reason we aren’t predicting price inflation is that builders and developers appear well prepared to quickly add to the supply of homes, thus keeping supply and demand in balance.

Balanced Job Market – by Todd Hirsch, Senior Economist – Alberta Treasury Branch

The last official jobs report of 2011 disappointed on the national front, but in Alberta the news was once again quite encouraging.

For the seventh consecutive month, Alberta saw an increase in total employment, rising by 4,500 jobs. Compared to twelve months ago, provincial employment is up by over 97,000 (+4.8%). Alberta’s unemployment rate fell to 5.0%—the lowest in the country, and close to the point generally considered a balanced job market.

Canada’s national job market, on the other hand, unexpectedly shed 18,600 jobs in November. That was opposite the expected gain of about 12,000. Job losses were concentrated in Quebec and Saskatchewan. The national unemployment rate edged higher to 7.4% in November, up from 7.3% in October.Even better news for Alberta, there was a strong shift towards full-time work (+9,100), while part-time positions actually fell (-4,600). Strong gains in oil and gas (+8,900) and other services (+11,600) were partially offset by losses in trade (-8,400) and manufacturing (-8,000).

While Alberta continues to buck the national trend in the jobs market, the pace of provincial job creation over the past several months has slowed. With the rate of unemployment being balanced—and increasing worry mounting in the global economy (see Economically Speaking)—Alberta is likely to see some moderation in employment growth in 2012.

But even with slower job creation, the province’s labour market will remain in enviably good shape.

Lacombe – Year to date sales are up 7.4% over the same period last year.  Listings are also slightly higher as well and the ratio of sales to active listings is currently 17% representing a market where the buyer has the advantage.

Ponoka – Year to date sales are up 34.6% over the same period in 2010.  Active listings are about the same as they were a year ago.  The sales to active listings ratio is 21% which still represents a buyer’s market but is rapidly approaching balance.

Blackfalds – Year to date sales are up 27.7% over the same period last year.  Active listings at Dec. 1, 2011 are down slightly from Dec. 2010.  The December sales to active listings ratio was 11.2% – still a buyer’s market.

Sylvan Lake – Year to date sales are up 1.9% over the same period last year.  Active listings as of Dec. 1, 2011 are slightly lower than the same time in 2010 and the sales to active listing ratio at 8.3% suggests the Sylvan Lake market still heavily favours buyers.

Red Deer – Year to date sales are up 15% over the same period last year.  Active listings as of Dec 1 this year are down a whopping 53% over Dec. 1, 2010.  December sales to active listing ratio was 30% – well into balanced market territory and closing in on a seller’s market.

Central Alberta – Year to date sales are up 20.5% over the same period last year.  Active listings as of Dec. 1 this year are down very slightly from Dec. 2010.  December sales to active listing ratio was 8.75% – overall, still a market where the buyer has the advantage.

Summary – There are definite signs that the real estate market in central Alberta is coming out of the doldrums we’ve been experiencing for the last 3 years.  Red Deer is the first to reach balanced market conditions, but if economic conditions remain constant over the next few months, the rest of our markets will soon catch up and even trend toward seller’s market territory, where the sales to active listings ratio is higher than 30%.  That means just 3 houses available for every buyer instead of the 10 or more we’ve experienced since 2008.

The reasons for our improving market are quite simple.  Oil prices continue to hover around $100 and drilling activity is up 41% over last year.  Alberta’s economy is once again leading the provinces with 3% GDP growth this year.  A strong economy generates jobs and jobs entice people to move to Alberta.  More than 25,000 people migrated to Alberta from other countries in 2010 and interprovincial migration is back in positive territory (forecasted at 10,000 for 2011).

Population growth creates demand for housing.  The first indication of strengthening comes in the rental market since many of those folks moving here are not in a position to buy homes.  The vacancy rate in Red Deer is now estimated to be about 1%.

There are caveats on this forecast.  87.5% of Alberta’s exports go to the U.S.  Our fortunes are tied tightly to the U.S. economy.  We are hearing encouraging reports from south of the border, but the improvement is slow and gradual which will temper our growth.  We are predicting balanced market conditions for 2012 in central Alberta but don’t expect much in the way of price inflation.

The article below suggests that some industries in Alberta are facing worker shortages.  We should expect those job openings to entice people to move to Alberta which will drive more demand for housing.  The rental market is already straining to handle demand and it’s only a matter of time before the resale and new home markets improve as well.

Jobless Rate by Industry – Todd Hirsch, Senior Economist, ATB Financial

The number of people looking for work in Alberta has fallen over the past year. However, the chances of finding work vary by industry—and some sectors are already seeing some serious labour shortages.

Alberta’s overall unemployment rate has fallen from an average of 6.7% during the first three quarters of 2010, to 5.6% in the same period of 2011. The rate was as low as 3.2% in June 2008, and peaked at 7.6% in April 2010.

Unemployment rates by sector vary considerably. The graph below shows major sectors of the job market, and how the rate of joblessness has changed between January-September of 2010 to the same period this year. (Due to space constraints, only major sectors are presented).

The sector with the lowest rate of unemployment in 2011 is health care and social assistance, at only 2.7%. Interestingly, that is the only sector in which the rate has risen this year (up from 2.1% in 2010). In both 2011 and 2010, the sector is experiencing labour shortages.

Workers in professional, scientific and technical services (3.0% unemployment) and mining and oil & gas (3.1%) are also in short supply.

The major sector with the highest rate of unemployment is the construction sector, at 6.9%. However, that is much lower than the 8.4% recorded last year. It’s also lower than Canada’s overall unemployment rate of 7.3%.

The market seems to be staying busy going into the middle of November.  As I mentioned over the past few weeks, the relationship between supply and demand has changed over the last few months with the gap narrowing rather than widening.

Active listings in Red Deer number less than 500 for the first time since the summer of 2007.  Sales have not recovered to previous levels, but are certainly better than last year (up over last year by 20% in our MLS Board area). 

There is new confidence the Keystone pipeline will be approved which is very good news for Alberta.  It’s still not guaranteed of course.  Environmental groups are fighting it, but the reality is that our oil is going to be needed as conventional supplies dwindle.  The article below suggests that Alberta businesses are very confident about our future.

The Beat of Its Own Drum – Dan Sumner, Economist, ATB Financial – Indicators for economic activity in Alberta during the third quarter have come up roses so far, and this morning another sign the economy is humming along with wholesale trade rising to its highest level on record.

Alberta wholesalers brought in $6.13 billion in revenues in September, the highest amount on record and only the second month in history above the $6 billion mark. During September wholesale activity rose 2.0% and is up 12.1% from a year ago, the second largest gain of any province behind Saskatchewan (+22.5%).

After plummeting during the recession it has been a nearly straight line upwards for wholesale trade in Alberta (see graph). Activity in the sector is one of the few that has definitively regained its pre-recession peak (unlike manufacturing shipments exports and vehicle sales, for instance)

Wholesale trade gives an indication of purchases by businesses. If wholesale trade in Alberta is strong it means firms in the principle industries (energy, agriculture, forestry, retail etc.) are out there spending money and in turn expect their sales to grow.

Wholesale activity for the third quarter joins a host of other indicators (employment, manufacturing shipments, vehicle sales, building permits, housing starts and exports), which all show the Alberta economy picked up during Q3, despite all the turmoil in the global economy.

Recent news that the US Government has postponed their decision on the Keystone pipeline may have a tempering effect on oil prices.  As production grows in the oil sands, the ability to get the oil to markets is critical.  Not having the Keystone pipeline limits the amount of oil that can be exported and may drive prices down as supply outstrips demand.  Obviously lower prices could cause a slowdown in our local economy, so we have to hope for a quick resolution to the pipeline issue.

Alberta Adding Jobs by Todd Hirsch, Senior Economist ATB  

While the rest of the global economy is bracing for a slowdown, Alberta remains a very enviable engine of economic growth.

Defying our expectations of a slight pull-back in the labour market, the provincial economy added 7,500 new jobs. This is the sixth consecutive monthly gain; compared to October of last year, Alberta employment is up 4.3%. The unemployment rate stands at a very balanced 5.1% (down from 5.4% in September).

This stands in sharp contrast with the rest of Canada, where this morning’s job report was very negative. Overall, the national economy shed 54,000 jobs—a far cry from the expectation for a gain of 20,000 jobs. Losses were concentrated in Ontario (-38,700), British Columbia (-10,800), and Quebec (-13,300). Canada’s unemployment rate ticked up from 7.2% in September to 7.3% in October.

While Alberta did add jobs over the month, they were virtually all in part-time work; full-time positions actually fell back by about 800 jobs. The new positions were dominated by gains in retail and wholesale trade (+11,600), oil and gas extraction (+8,800), and agriculture (+5,200). Losses were reported in professional, scientific and technical jobs (-8,000) and construction (-3,900).

The solid job gains in Alberta reflect an economy that continues to outpace the rest of the country. The province remains an island of growth, propped up by high oil prices, drilling activity and spending in the oilsands. The hit to Canada’s overall economy, however, will add to the level of worry at the Bank of Canada as the country continues to be weighed down by a souring global environment.

An increase in construction starts is particularly good news since construction is one of the industries that drives our economy.  New construction not only creates a lot of jobs directly in the industry, it creates jobs and growth for the thousands of businesses that provide the materials, supplies and equipment needed.  Any improvement in construction starts will translate into a stronger economy in Alberta, and a stronger economy means a stable housing market.

Starts Pulse Higher – Dan Sumner, Economist, ATB Financial

Activity in the energy patch has had trickle down effects on many sectors of Alberta’s economy recently, but residential construction has remained slow. However, with data out this morning showing that housing starts notched higher for the second time in three months that might be changing.

Builders began construction on 28,400 (SAAR) urban housing units in October 2011, the second highest amount since March 2010. Residential construction has generally been quite subdued in Alberta over the past year (and really since the recession began) but in August and now October starts have climbed above the 28,000 mark.

The very weakest segment of Alberta’s residential construction market over the past three years has been condominium construction—weighed down by an oversupply of units started during the boom. However, it appears that the surges in both August and October were thanks to a rise in multiple dwelling starts (i.e. condominiums).

Edmonton appears to be the winner in October with multiple dwelling starts jumping from less than 300 in September to nearly 800 in October. Back in August a surge in multiple dwelling starts in Calgary was behind the jump.

With two months of data now pointing towards some life in Alberta’s residential construction market, the case for a pickup in construction activity is being strengthened. That said, multiple unit dwelling starts can be very volatile and there are certainly no guarantees the recent rise will be sustained into the New Year.

As everyone in central Alberta knows, the strength of our economy is highly reliant on the price of oil and gas.  There has been some speculation that oil and gas prices are bound to soften as the world economy slows.  A recent article in the Globe and Mail suggests that oil consumption in China is still growing and quotes the oil analysts at Barclays Capital in London who said “There is a large supply deficit in the global oil market, with demand exceeding supply in the third quarter”.

 That suggests to us that there is a long term future for Alberta’s oil and gas and the jobs and healthy economy that come with it.

 Manufacturing Shipments Perk-up in August – by Dan Sumner, Economist – ATB Financial

When Canadians think of manufacturing, they typically think of Central Canada. But Alberta’s manufacturing sector has grown in leaps and bounds over the past ten years and more recently has been an important driver behind the post-recession recovery.

Alberta manufacturers managed to grow their shipments 0.4% in August to $5.79 billion. Compared to August of last year, shipments are higher by 15.6%, the second largest year-over-year gain of any province (Saskatchewan has seen the largest at 17.1%).

While shipments were up marginally in August, they have been essentially flat for the last five months (see graph). However, this flatness comes on the heels of nearly straight gains from the middle of 2009 to Q1 of this year. Alberta’s manufacturing sector has also been an important job creation machine recently, adding more jobs than any other sector over the past twelve months.

Nationally the manufacturing story was quite positive in August, with shipments advancing by a higher than expected 1.4%. Canadian shipments have risen two months in a row now, partly a result of the unwinding of effects (supply chain disruptions) associated with the earthquake and tsunami in Japan.

This morning’s national release adds to the evidence that Canadian GDP growth will be positive in Q3, allowing Canada to avoid a technical recession (defined as two consecutive quarters of negative GDP growth).

With a healthy energy sector and rising oil sands production, manufacturing in Alberta should continue to grow in the long run. But in the near-term, shipments from this province will continue to be subject to swings in gasoline and oil product prices.