The Red Deer market showed signs of improvement in October with sales up from September and a lower active listing count, although there are still 120 more active listings today than there were a year ago. The sales to listing ratio shows the market getting closer to balance but a sales to listing ratio of 25 – 30% would be ideal, where neither Sellers or Buyers have the advantage.
The economy continues to show signs of improvement which should contribute to eventual gains in the housing market, although there are still some headwinds. In an effort to curb rising house prices in Toronto and, in anticipation of higher interest rates, the federal government has once again tightened mortgage rules for all Canadians. Buyers with more than 20% down will now be required to qualify for financing at the Bank of Canada’s posted rate of 4.95% or 2% higher than the actual rate on their mortgage (whichever is higher) effective January 1, 2018.
Homebuyers who will be affected by the new rule should consider whether buying before Jan. 1st is in their best interest. Home sellers will also be affected by the new rules as those buyers will now qualify for lesser mortgage amounts.
It appears that the first half of October was a little better than the same time in September. In most of our markets, the active listing count is down quite a bit from September which is also encouraging. It is almost certain that the continued tightening of mortgage qualifying requirements is a large contributor to a little slower market.
It would be irresponsible to tell our sellers that the market is going to improve much over the winter. While spring is likely going to be a little better, it would also be irresponsible to tell our sellers that prices are going to recover back to 2014 levels next spring. That is simply not going to happen and it would be wrong to give false hope.
The bottom line is that it will likely take two or three years for prices to appreciate significantly unless something of an economic miracle happens.
September sales in Red Deer didn’t keep pace with the strong performance in August and it turned out to be the slowest month since March of this year. We aren’t sure what triggered the slowdown except that maybe the extra activity in August was in anticipation of higher mortgage rates coming in September.
The Alberta economy certainly does appear to be improving, with oil prices hovering over $50US and stories of oil companies having trouble hiring. We know it isn’t like the good old days, but some improvement is certainly welcome.
One major factor that impacts the real estate market in a large way is migration into or out of Alberta. According to TD Economics, Alberta had a net gain of 131,669 people from other provinces between July 2010 and July 2015 and then lost 30,239 between July 2015 and July 2017. When they all came, we built housing to accommodate them, so now we have a few more homes than we have people to occupy them. Supply and Demand are the single largest influence on real estate prices and demand is down as a result of the loss of those people. Alberta’s total population has grown over the past two years as a result of international migration and natural births. The problem is that a lot of that growth won’t contribute economically for a few years.
August sales in Red Deer hit the highest single monthly total so far this year, while the number of active listings fell slightly compared to last month, bringing the market close to balance. Sales across central Alberta were also better in August, bringing year to date sales in line with the same period last year.
One month doesn’t make a market, but the improvement certainly suggests we are turning the corner. There haven’t been any highly visible events that point to the change, but strong GDP growth in both the Canadian and Alberta economies suggest there is potential for continued recovery. Unfortunately, a strong Canadian economy may cause another bump in the Bank of Canada rate which will trigger another jump in mortgage rates. Tougher mortgage qualifying requirements imposed by the federal government combined with a rate increase would be detrimental to our fragile housing market recovery.
Oil prices remain subdued, moving up and down just under the $50US benchmark, but seem to be just sufficient to keep activity up in the energy sector. Capital investment budgets in that sector are likely to be trimmed a little going into fall and winter and only the most cost efficient projects are moving ahead. We are cautiously optimistic.
Sales in the first two weeks of August were up compared to the same time in July in half our markets and down in the other half. Active listing counts are also up in some markets and down in others. There are certainly signs that the market may be improving, but it will likely be a slow process and it’s unlikely there will be any price stability until supply and demand move closer to balance. I expect that will happen by next spring as long as oil prices stay stable.
Sales in Red Deer in July fell slightly when compared to June while the number of active listings continued to rise. The market remains in buyer’s territory, while year to date sales are down 14.7% when compared to the same period in 2016.
Some price ranges in the Red Deer market are doing better than others. The supply/demand ratio in the $200,000 to $300,000 price range is close to balance and most advantageous for sellers at the moment. Activity in the $100,000 – $200,000 price range also picked up substantially last month and may be the first sign of a resurgence.
There is good news! The Canadian dollar has gained quite a bit of ground against the US dollar in the past few months and oil prices briefly broke the $50 US barrier this week. The Canadian economy is performing very well and most reports indicate that the Alberta economy has turned the corner. Business optimism is up and the future is definitely looking brighter.
While we don’t expect a quick improvement in the central Alberta market from a seller’s perspective, we do see things gradually picking up moving into next spring. This summer and fall may be the best opportunity buyers will have from a price, choice and interest rate perspective before the advantage starts to turn back to sellers.
STATISTICS FOR CENTRAL ALBERTA
INTEREST RATE CHANGES:
The Bank of Canada announced on July 12th, 2017 that it was raising its trend-setting overnight lending rate from 0.5% to 0.75%. The increase partially unwinds the half-percentage point by which the Bank dropped interest rates in early 2015 following the sudden drop in oil prices in late 2014.
When announcing that it was raising rates for the first time in seven years, the Bank recognized that Canadian economic growth has recently been coming in stronger than it had previously predicted and broadly based.
The Bank suggested future rate hikes will depend on whether economic growth continues to broaden and become more sustainable, whether soft readings on inflation prove to be temporary, and whether exports and business investment improve.
Even under these conditions, the Bank said it remains wary about risks to the Canadian economic outlook posed by protectionist U.S. trade policy and high Canadian household indebtedness. That means the Bank will be cautious about further raising interest rates.
As of July 12th, 2017, the Benchmark five-year lending rate used to stress-test mortgage applications stood at 4.64 per cent, which is unchanged from both the previous Bank rate announcement on May 24th and from one year earlier. That said, Canada’s major chartered banks have recently raised advertised five-year fixed mortgage interest rates by one-fifth of a percent to 2.84 percent – which translates into an increase of $50 per month on a $500,000 mortgage loan ($60 of per month on a $600,000 mortgage loan, etc.).
The next interest rate announcement will be on September 6th, 2017. The next release of the Monetary Policy Report, which will update the Bank’s economic forecast, will be on October 25th, 2017.
The Red Deer market continues to struggle with year to date sales down 16% when compared to the same time in 2016. In spite of lower activity levels, the market remains very close to balance and the ATB says recovery is on the way.
Despite signs that the provincial economy is turning a corner, ATB Financial’s most recent Business Beat survey suggests a full economic recovery will still take time. Optimism about the economy is up compared to last year but the latest round of surveying shows a slight decline in the number of small- and medium-sized businesses that believe Alberta’s economy will be stronger in six months. ATB’s Economy Index slipped from 58.4 in the first quarter of the year to 54.1 in the second quarter. (A value more than 50 means more business owners are more optimistic than not.)
The latest reading of ATB’s Business Index was 64.6, down by 1.5 points from the first quarter. Despite the moderate dips in the two indices, both economic and business optimism levels are above 50 and show that economic sentiment in the province is far better than last year.
We are of the same opinion when it comes to the housing market – there are signs of improvement but the real recovery may be a while coming. In the meantime, there’s still tremendous opportunities for buyers.
The central Alberta real estate market has been following similar trends for many years – slower in the winter, strong in the spring, a little slower in the summer and busy again in the fall. There are some reasons for those trends. The spring market probably has been the strongest because that’s when oil workers came home at break-up and had some extra time to look at houses and make a move before going back to work.
December and January are slow for obvious reasons – most people don’t have time to move during the Christmas season and many don’t like to move in the winter.
The last half of June and the summer months are also times when many people have other things on their minds – the end of the school year, summer holidays etc.
September, October and November can be quite busy, although rarely as busy as the spring market.
This year, the spring market has not reached levels seen when oil prices were high and the economy was booming. We have now experienced two and a half years of low oil prices and a slower economy and it shows in the real estate market. Sales are lower and the number of active listings is higher, which leads to softer prices.
There is evidence that the economy is turning. Alberta is projected to lead all Canadian provinces in growth this year with GDP predicted to increase by 3%.
So, when can we expect to see a stronger real estate market? Obviously it depends on oil prices to a large degree, but the real estate market in the last few downturns has always taken at least a year to recover.
That would mean that we could see a return to more normal sales numbers in the spring of 2018. In the meantime, we expect to see sales and the listing count keep pace with last year and maybe even do a little better.
Again, the good news for those buying and selling in our market – sell low, buy low. If the house you are selling goes up, the one you buy will go up as well. Now is the time to take advantage of the large inventory of homes and the vast choices available as well as very favorable interest rates.
Real estate has always been a great investment. It provides a place to live while growing in value and best of all, the profit at the end is realized TAX FREE! There just isn’t a better place to put your money.