Central Alberta's Commercial Real Estate
|Posted on January 23, 2016 at 1:55 PM||comments (31625)|
Red Deer sales maintained a good pace starting out the new year, actually a little higher than the same period in 2014. The pending sales count indicates that we could finish up the month as almost strong as last year too. The number of active listings is considerably higher than it was last January and is a bit of a concern. An over-supply puts downward pressure on prices.
A bigger concern is that consumer confidence may be hurt by the constant barrage of tales of doom from the media – thousands of jobs lost in the energy industry etc. Truth is, many of the jobs lost in Alberta were in Ft. McMurray and it’s likely a lot of those people were commuting to work from all over Canada. Their paychecks went home with them and the only contribution they made to the Alberta economy was the work they produced. We used to hear that there were 70,000 jobs unfilled in Alberta. Even if a lot of those jobs were energy related, some of them weren’t and have been undoubtedly filled as a result of the slack in the energy industry. While we are cognizant of the fact that people in central Alberta have lost jobs and potentially more could, we also believe that the media is only focused on the negative and that there is much positive out there if we just look for it.
The Alberta Treasury Branch’s Alberta Economic Outlook for the first quarter of 2016 offers a realistic look at what we may experience over the next 18 months. It offers hope that things will slowly begin to turn around in the middle of this year and slowly get better from there. The summary of the report is as follows:
Downturns are not unusual in Alberta’s economy, which remains closely tied to the price of energy resources. A steep drop in oil prices in 2014 – which continued and accelerated in 2015 – led to a contraction in Alberta’s GDP of about one percent last year. Unfortunately, early 2016 holds little promise of a quick rebound. Excess global supply from OPEC producers, coupled with uncertainty in China, Europe and the Middle East, continues to weigh on oil prices. This has led to even greater stress on the balance sheets of the province’s energy producers as they struggle to reduce costs. Natural gas prices continue mostly unchanged in a price range unsupportive of new investment or production.
The strains in the oil patch are also weighing down industries peripheral to petroleum extraction, particularly manufacturing and construction. As well, weaker consumer sentiment has resulted in reduced retail trade and residential housing construction. All of this has resulted in an overall deterioration in the job market.
As always, though, there remain pockets of optimism. Agriculture, forestry and tourism – which are the province’s other major industries – continue to perform well. Prospects for 2016 are positive, particularly with the weak Canadian dollar making commodity exports more attractive, and encouraging more U.S. tourism.
The Economics and Research team at ATB Financial is estimating a GDP contraction of one percent in 2015, with a smaller contraction 0.5 per cent in 2016. Most of the economic stress on the economy and labour market are expected in the first half of the year. Stability and even some return to modest growth is still anticipated by the end of the year.
|Posted on November 2, 2015 at 4:35 PM||comments (1)|
The question we are asked most often lately is “How is the market? Are prices going down? Where is the market going? To answer the first question, the market so far this year has been very normal when compared to the last five years. Answers to the other two questions are a little more difficult.
There are two major components that make up every real estate market – Supply (sellers) and Demand (buyers). There are many factors that influence those two components, but the economy is the most important. Most people rely on the media to tell them how the economy is doing. The way the media represents the economy can influence consumer confidence. When consumers are confident in the economy, they make buying and selling decisions. When they are not confident, they tend to delay making those decisions.
The federal election campaign has no doubt impacted consumer confidence. Every political party has been telling us that if the other guy wins, we are doomed. Whichever one you believe, if you aren’t convinced they are going to win, it’s possible your confidence is low.
Sales so far this month in central Alberta have been generally normal for this time of year, but we have noticed that the number of pending sales are down, suggesting that the market has slowed a little just recently. It is certainly possible that the election campaign and the uncertainty of the result has caused people to hold back until the election is over.
We can’t predict whether prices will go down or where the market is going. The relationship between supply and demand will determine what prices do. We do know that it takes much longer for prices to go down, than it does for them to go up.
ATB Business Beat: Optimism drops, but businesses still happy, by Nick Ford, Economist at ATB Financial
ATB Financial’s third quarter Business Beat survey shows a decline in the number of small- to medium-sized businesses that believe Alberta’s economy will be stronger in six months. When asked about the province’s expected general economic performance, the index fell from 39.0 in the second quarter of the year to 25.2 in the third quarter.
This was the sixth consecutive quarter that there was a falling-off in the ATB Business Index, too. This particular measure of future business performance sat at 46.6, nearly seven points lower than the last round of polling and about 24 points lower than this time last year.
There’s no doubt that falling optimism is related to uncertainty clouding the energy sector. This last round of surveying was conducted in August, the month that saw the price of oil fall to around $US 38 per barrel. Given this, the drop in optimism is not surprising.
But, this latest version of the Business Beat survey focused on happiness, and despite the tension and frustration overshadowing our province’s oil and gas sector, over half of small and mid-sized business owners in Alberta report being pretty happy with nearly a quarter reporting that they are very happy.
So while oil prices remain suppressed and continue their battle in the marketplace, small- and medium-sized business owners in our province remain pretty happy.
|Posted on September 17, 2015 at 11:20 AM||comments (1)|
Sales in August slipped while the number of active listings increased slightly. It is likely that we are now seeing the first signs of low oil prices in the housing market. Historically, slower sales and higher inventory levels in Alberta have occurred about a year after a slowdown in the energy industry.
The Red Deer market has finally moved into balance after giving sellers the advantage of several months. Extremely low interest rates have been influential in our strong market so far this year. Higher supply and lower demand will have a calming effect on prices this fall and combined with those low interest rates, will create an ideal environment for buyers who are not affected by the energy industry slowdown.
Opinions on where energy prices are going vary. Some believe that OPEC will reduce production while US oil reserves are shrinking more quickly than previously forecasted. Others believe the price of oil will remain below $50 for at least another year. Whatever the case, the world still needs vast amounts of oil every day and energy companies will adapt to their enviroment. The Alberta economy does rely on a strong energy sector to fuel a "strong" economy, but we will survive this downturn the same as previous ones and come out of it stronger, smarter and more efficient. That's what Albertans do.
|Posted on February 18, 2015 at 2:25 PM||comments (67)|
Red Deer January sales are down from the same period last year, something we certainly expected considering the current situation with the oil prices. We did start the year with low inventory levels and while they are up some, we are still very close to a balanced market. The good news is, we are starting off this month with a better than average number of pending sales, which should translate into a good February.
The media is mostly full of doom and gloom about our economy, but there are a few positive tidbits mixed in if you look for them. Oil prices rebounded a little this week and the dollar with it. Oil futures for May are trading at much higher prices than we are currently seeing. And the news that oil companies are shutting down drilling means the production will slow. The price of oil is driven by supply and demand. When the price goes down, demand will increase in supply will decrease. As demand increases and supply decreases, price will find its balance. In the past, OPEC has artificially managed supply to keep prices high, but it appears they are willing to do that anymore. The imbalance is currently only about one – 1.5% of total consumption. It won’t require much increase in demand or decrease of supply to bring the market back in the balance.
|Posted on February 18, 2015 at 2:20 PM||comments (1)|
Red Deer Market Update – sales in the first two weeks of the New Year are off from the same time in December but close to the first two weeks of January 2014. The number of active listings is slightly higher than it was a year ago, but normal for this time of year.
We are consistently asked how oil prices will affect the housing market. House prices, like oil and everything else in the world that is sold in an open market, are dictated by supply and demand. The reason oil prices are low is that supply has been growing faster than demand. When oil (and house) prices go down, a couple of things happen – demand goes up and supply goes down, eventually bringing supply and demand back into balance.
We don’t have a world recession. The American economy is strong. We still have low interest rates. Many industries and most consumers benefit from lower fuel prices and a lower Canadian dollar. Yes, there will be some slowdown while oil prices sort themselves out, but we will still have an economy that will perform as well as most other Canadian provinces according to all of Canada’s major banks. The question is, “is the glass half full, or half empty? We think it’s half full!
Typically it takes a little time for the law of supply and demand to work its way through the economy, but it always does. We have been through these situations before and always come out stronger and better equipped to handle the next one. If there is a nice thing about the current situation, it is that we are just dealing with an imbalance in the supply of and demand for oil.
Not all forecasts see Alberta’s economy the same way – Todd Hirsch, Chief Economist, ATB Financial
With oil prices plummeting in recent months, there’s been intense interest in how Alberta’s economy will fare in 2015. Although economists wished we had a crystal ball, we have to settle for our best guesses and insights to forecast how things may turn out—and here there is some disagreement.
The graph below shows the most current forecasts from some of Canada’s largest and most closely followed economic forecasters. They generally show an expectation of real GDP growth to be somewhere around 2 per cent—a far cry from the 4 per cent growth that the province has managed over the last several years.
One outlier that’s been attracting a lot of attention is the forecast from the Conference Board of Canada. They now expect Alberta’s economy to be in an outright contraction this year—in other words, a recession. If that happens, it will be the first time the province’s economy has shrunk since 2009 when it fell by 4.2 per cent.
Of course it’s impossible to say for sure if the Conference Board’s forecast is correct—or if any of these forecasts are correct. And it’s normal for there to be some varying opinions about how far low oil prices will drag down the economy. But while economists don’t always agree, they are all in unison about one thing: Alberta’s economy is set to slow significantly in 2015.
|Posted on February 18, 2015 at 2:20 PM||comments (2)|
Red Deer residential sales end of the year on a very positive note with annual sales up to up more than 10% over last year’s pace. For the first time ever, there were at least 100 sales and every month of the year, although we didn’t quite make the total sales achieved in 2007 (2240). New homebuilders obviously did a good job this year as inventories pretty well kept pace and are in good shape going into the New Year.
Sales in all of central Alberta were up just over 13% from 2013 while the active listing count is down substantially in almost every market. That bodes well for home prices if the energy industry and the economy suffer from the current low oil price situation. Going into a slower market with lots of inventory could trigger price pressure as long as the building industry refrains from adding too much inventory in the way of new spec homes, the market should be able to sustain a period of its slower activity.
We don’t know what the future holds for Alberta’s economy, but we believe the housing market can weather a short term slowdown of a year or so without too many casualties. We do believe, like many others, that oil prices will recover within the next year or two and the Alberta economy will continue to lead the rest of the country in spite of short-term setbacks.
|Posted on February 18, 2015 at 2:15 PM||comments (2982)|
Sales in the first two weeks of December were almost as good as the same time in November while the number of active listings dropped again, but stayed above last year’s level. Activity is strong at the high end of the price spectrum which is a little unusual at this time of year. The number of pending sales suggests we could end the year with above average sales for December. It’s too early to tell what impact falling oil prices will have on the market, but unless they drop dramatically and stay down for an extended time, the impact could be slight. Many experts are predicting oil prices to recover in less a year or less. That would likely mean a chance for the local housing market to stabilize and catch its breath. Sometimes a little breather is not a bad thing.
Oil production not faltered by price – Nick Ford, Economist, ATB Financial – Alberta’s crude oil producers don’t seem too troubled by the plethora of news stories and business columns detailing oil’s price plunge, at least according to new Statistics Canada data on oil supply and distribution. Instead of cutting in September, Alberta’s oil producers extracted the same amount as in August and exported even more. Since 2013, oil extraction has grown by eight per cent year-over-year. On a more impressive note, total oil withdrawn in Alberta has increased by 46 per cent over the past four years.
Exports were approximately 1.2 million barrels higher in September, marking a two per cent increase over August. Crude exports are 16 per cent higher this year than last. Virtually all of Alberta’s crude oil exports are sent to the United States, which is particularly interesting given the success of fracking south of our border.
We may still see similar output and distribution over the next couple of months. One reason is the simple fact that many oil producers need the money. Even with less than optimal prices, producers that have hedged large sums of money require funds to pay investors and creditors. Cutting off or easing operations could terminate valuable operating revenue and prove even more costly.
Jobs report shakes off falling energy prices – Todd Hirsch, Chief Economist, ATB Financial – If plummeting oil prices are expected to bring waves of layoffs in Alberta, it appears that companies in the province haven’t bought into the panic—at least not yet. In fact, last month the number of jobs in our province actually increased. According to this morning’s Labour Force Survey, total employment increased by 3,200 (adjusted for seasonality), all of them full-time positions. Alberta’s unemployment rate remained unchanged at 4.5 per cent.
There were significant gains in construction (+9,100), health care and social assistance (+6,500), and even in oil and gas (+4,700)—the sector around which there is some worry at the moment. While the price drop for West Texas Intermediate probably overstates the price drop for Western Canadian oil, there is no question that producers in this province are seeing lower cash flow.
But while the number of jobs increased, there may still be some cracks starting to show in the energy sector. Employment in professional, scientific and technical services took a big hit—a loss of 11,000 jobs. Occupations in this category include geologists, engineers, accountants, lawyers and technicians—the kinds of services acquired by oil and gas producers. Even though they didn’t lay off any of their own workers, energy producers may be starting to pull back on contracts with external service providers.
Also, the survey of employment was conducted between November 9 and 15—and since then the price of Western Canadian Select blend oil has slumped another $10 per barrel. It’s almost certain that at least some job losses in the province are still to come.
|Posted on February 18, 2015 at 2:15 PM||comments (1)|
In Red Deer November sales dropped 30% from October’s and it appears that the winter market has finally appeared along with the winter weather. While the number of active listings fell again the month, it wasn’t enough to offset the drop in sales pushing the market into balance for the first time since early this year. There’s no need to panic though, this situation is typical for this time of year.
At this time of year we are often asked for a forecast for the new year. Of course our crystal ball is no better than anyone else’s, but there are a number of things to consider. The one cloud in our otherwise sunny skies is the specter of low oil prices. Lower oil prices could certainly have a negative impact on our economy and the housing market if they persist. Most experts don’t believe that will happen.
Alberta economy has led the country for several years and most likely will continue to do so. We have the lowest taxes and the highest wages in Canada and people from other parts of the country will be attracted to that. Strong population growth and high wages usually are reliable predictors of a strong real estate market. We continue to believe central Alberta is the best place in the world to live, even if it can be a little cold some days.
|Posted on November 22, 2014 at 12:55 AM|
Red Deer Market Update – The market is moving back toward normal for this time of year on both the supply and demand sides of the spectrum although the number of pending sales suggests we could finish the month stronger than last year. There appears to be ample supply to satisfy buyers in every price range which suggests the market is balanced. While there is some concern over lower oil prices, many experts believe our economy will remain strong at least for the next two years.
More Jobs Added Last Month - Todd Hirsch, Chief Economist, ATB Financial - Alberta’s jobs market kept chugging along in October with a moderate but positive gain of 3,300 (new) jobs. But while the total number of jobs added last month was only moderate, what was more impressive was the quality of the new employment.
There was a gain of 11,800 full-time jobs, offset by a loss of 8,500 part-time jobs. This suggests that better jobs are being created than the ones that are being eliminated, or that the part-time workers are moving into better paying full-time positions.
Looking at only the monthly movements in the job market, one would be tempted to conclude that the employment situation in Alberta has been volatile. The summer months were marked with job losses—and indeed a huge drop in August. That was followed by an apparent surge in September when the province posted one of the strongest monthly gains on record.
But this volatility is probably more illusion than reality, and a reminder that it is never wise to infer too much from one month of data. Looking over the longer term trend presents a better picture of what is happening, and indeed the situation in Alberta’s job market is healthy and stable. Since October 2013, there’s been a gain of 58,500 jobs—an increase of 2.6 per cent. As well, the unemployment rate has hovered within a balanced band in the mid-four per cent range, suggesting Alberta remains one of the hottest job markets in the country.
Excerpts from CMHC Housing Outlook - 4th Quarter 2014 - Alberta is experiencing the highest regional price gains this year as sales growth is helping lift the average resale price by more than four per cent to a projected $399,000 in 2014. The average price will continue to rise but at a slower pace to $407,800 in 2015 and $417,500 in 2016.
In Alberta, MLS® sales are projected to increase about eight per cent to 71,200 in 2014. Momentum from large migration inflows and employment gains are expected to help lift resale transactions to 72,900 in 2015 and 74,600 in 2016. The movement from rental tenure to homeownership, along with rising incomes, will help increase sales as will move-up buying. On the other hand, moderating migration inflows and higher monthly carrying cost are expected to slow the gain moving forward.
The average MLS® price in Alberta is projected to increase by over four per cent to $398,900 in 2014 and rise to $407,800 in 2015 and $417,500 in 2016. Sellers’ market conditions in Calgary are projected to ease as new listings rise, reflecting an overall provincial trend. Overall resale market conditions are forecast to remain balanced over the forecast period with the pace of price growth declining through 2016.