Weekly Market Update and 2015 Forecast
Here is our update on the Edmonton real estate market. (Previous week’s numbers are in brackets). For the past 7 days:
New Listings: 312 (89, 126, 190)
# Sales: 101 (56, 101, 175)
Ratio: 32% (63%, 80%, 92%)
# Price Changes: 99 (44, 40, 116)
# Expired/Off Market Listings: 83 (377, 72, 121)
Net loss/gain in listings this week: -128 (-344, -47, -106)
Active single family home listings: 1618 (1519, 1727, 1778)
Active condo listings: 1002 (952, 1072, 1091)
Homes 4-week running average: $424k ($424k, $436k, $432k)
Condos 4-week running average: $235k ($253k, $264k, $263k)
The REALTORS® Association of Edmonton (RAE) held their annual housing forecast this week, predicting another big year for real estate in Edmonton. I summarized their predictions and added a few of our own after our usual weekly update. The first two weeks of 2015 show the real estate market is off to a bit of a slow start – will this develop into a trend, or will things pick up?
Housing Forecast Summary RAE vs. CMHC:
Both CMHC and RAE forecasted a 3% increase in the overall average residential resale price, with RAE going on to predict a 3.5% increase in single family home prices and a 2.5% increase in condo prices. RAE forecasted a 1% increase in sales, while CMHC predicted a 2% increase in sales. With 2014 being the best year for real estate sales and values since the ’07 boom, and consumer confidence on the decline, these could be lofty projections. You can read the complete projections and see presentation slides from the forecast seminar here, I’ve also included the charts I found most relevant from CMHC at the end of this post.
Factors supporting market improvement:
- Employment growth in the Greater Edmonton Area (GEA) has been around 3% for the past three years, while there is still employment growth projected, they are projecting a lower level – around 2% for both 2015 & 2016
- Average weekly earnings are expected to continue to rise
- The unemployment rate edged up over 5% in the GEA in 2014 but it is expected to come back down under 5% by 2016
- Net migration is expected to decrease in 2015 & ’16 but remain high – they’re projecting net migration for 2015 of 24,000 people and 22,000 in 2016.
- Mortgage rates are expected to rise modestly in the latter part of 2015 – this could motivate “on the fence” buyers to jump into the market
- Rental rates are increasing faster than inflation
- New condo inventory remains low
Factors that could negatively impact the real estate market:
- The price of oil
- Employment growth in Edmonton has started to shift from full time to part time jobs.
- Mortgage rates are expected to rise modestly – this could affect affordability and cause prices to decrease
- Rental vacancy rate is expected to increase slightly, also lots of new rental units are under construction
- Demand has outpaced supply for awhile, there is more supply coming through new construction completions and new listings have started to outpace previous years – inventory is expected to increase
- New condo construction near record high (but expected to slow in coming years)
There are two main thoughts I can’t really get past about all these projections. First, 2014 was a really good year for real estate in Edmonton. Can 2015 really be better than 2014? I mean, another year like 2014 would be great, but we all know it doesn’t work that way. Second, consumer confidence has taken a big hit in Alberta with oil prices tanking:
“[Confidence among] households in the Prairies, whose expectations earlier in the year were the most optimistic, have plummeted and are now lower than in the Atlantic provinces,” Robert Lawrie, an economist at Bloomberg, said. Source: GlobalNews.ca
Consumer confidence is a BIG factor when it comes to real estate. I can tell you we’ve gotten a lot of calls from people considering selling this year, who weren’t planning on selling for some time. Even if there is increased demand from migration into Edmonton, supply could outpace demand and put pressure on prices. I’m afraid I’m not as optimistic as RAE and CMHC for 2015, and that 2014 will be seen as the peak for this cycle. I’m not saying the market is going to crash and burn or anything like that, I just don’t see how this year could be better than last year, even if net migration and job growth are a great as CMHC has projected. What do you think?
About Sara MacLennan
Sara MacLennan is the Director of Marketing at Liv Real Estate and a licensed Real Estate Associate. The bulk of Sara’s experience and wealth of expertise lies in on-line technology and marketing both for agents and consumers. Sara is the former National Director for Interactive Marketing for Coldwell Banker Canada where she was responsible for an extensive training program traveling to offices across the country training agents and brokers on marketing and technology. Find Sara on Twitter @edmontonblogger.
Comments 19
Karl hungus
I wouldn’t call a 5% increase a “really good year” when the historical average has been about 7%. I would say 5% would be an average year with maybe a 10% jump being a really good year.
Nothing wrong with a 3% bump though considering the economic times.
Chris
Potential typo: the net gain in listing is stated as a negative number, but the number of condo/sfh listings are greater than last week.
Tom
Well we’re lower price-wise than we were last year. So based on that, I would say we’re looking at about a 7% decrease in housing prices (and that was the increase in 2014). But who knows, the spring market could surprise!
It’s all perception; if people think that they can get a house for $50,000 less 18 months from now, they will postpone their purchase, leading to a self-fulfilling prophecy.
wsn
@Tom:
Not really. If people think they are going to get $100 i-phone 6 and hold on to it, they will get it. But not house. Real estate is really easy to hold onto from a seller’s perspective. Low interest rate does help too.
Al
Thanks Tom.
Also, I am sure by now you know that the province has that hiring restraint in place. I would not be surprised of cuts in capital projects, infrastructure etc. in March budget, which will have impact on employment rate in Edmonton and Alberta.
Dean
My wife and I are living in the Maritimes but hoping for a military move to Edmonton this summer. I am almost certain the move will happen but, as with all other government budgets, things are a little tight for the CF and who knows if postings will be scaled back. I digress. In anticipation for a move out west, we have been doing some research on residential real estate and talking to people with connections out there. Over the past few months the sentiment has completely changed from a “you can’t go wrong with Alberta real estate,” to a “you might want to hold off because things could get ugly” tone. As strange as it might seem, there are people expecting real estate and local economies in certain pockets of Nova Scotia to suffer because of the slow down in the Alberta oil patch. Not surprisingly, if the general feeling is that we are going to suffer on the other side of the country because of low oil prices, how do you think we feel about Edmonton.
I totally agree with the blog author that consumer confidence and public perception of wealth are huge factors in driving local economies and RE markets. With the headlines we have been reading about Canada in general and Alberta in particular, it is no wonder that new polls suggest that consumer confidence is headed to the basement. I even read that Alberta’s consumers now have less confidence than people in the Atlantic provinces (considering how bad our economies are, this was a surprise). With consumer debt being the highest in Alberta, it is no wonder people are starting to feel less optimistic.
My expectation for the coming year is that consumer confidence will continue to drop in Alberta as thousands of oil and gas related jobs are lost and the reality sets in that this will not be a short term problem. There will also be a slow down in residential and commercial construction that effects thousands of other jobs and businesses. As people feel less rich, they will spend less and the greater economy will suffer. The demand for housing will drop as supply swells and prices will drop accordingly. I expect a 5-10% drop in real estate values by this time next year. If oil prices stay low through the year, 2016 could be really bad. When the entire world, including our own central bank, is saying that our real estate is overvalued and government, Oil and gas companies and construction industries are all projecting cutbacks, how on earth can anyone expect real estate prices in Alberta to go up? That being said, I don’t believe any real estate board in history has ever predicted a drop in prices.
All things considered, my wife and I plan on leasing for at least a year when we get to Edmonton.
ps, this site is a fantastic resource.
wsn
Low oil price and a rise of interest rate won’t happen at the same time.
If the low oil price is to persist, then the CPI will be really really low, prompting the central bank to cut rate, not raise it.
Arfmooocat
Goldman Sachs says $35 oil six months from now
Arfmooocat
Saudi Prince: Oil will never return to $100
Arfmooocat
Oil price plunge could put Alberta into recession, Conference Board of Canada says
http://www.cbc.ca/news/business/oil-price-plunge-could-put-alberta-into-recession-conference-board-says-1.2899167
Al
Yep, the ugly “R” word is surfacing again!!
MT
Since we are pouring gas on the fire:
“Calgary Home Prices Drop Most in Almost 2 Years on Oil Fall”
http://www.bloomberg.com/news/2015-01-14/calgary-home-prices-drop-most-in-almost-two-years-on-oil-plunge.html
Sheldon Johnston
Dont forget that Calgary’s prices accelerated far ahead of Edmonton on less job growth and migration. I would expect that their market is therefore more impacted. Keep in mind that while the oil situation is global, impacts will be localized.
MT
Yes, but Edmonton is home base to many blue collar workers that head North to camps, or come home daily. Calgary may have more froth, but Edmonton will be impacted by any job loss.
– Captain Obvious.
Sheldon Johnston
Agreed. Many of the jobs can be absorbed for a short time in commercial construction. However that is entirely second hand speculation from construction clients of mine.
CMD
Considering how the entire world was going to hell in a hand basket in 2009, we seemed to crawl out of that quite nicely. We’ll weather this storm and it will be nowhere near as to what we experienced in 2009. The overall global economy is in much better shape than it was in 2009. Production will eventually slow, supplies will decrease and prices will rise. I expect the price of oil will be volatile both on the plus and negative side over the next 4-6 months.
Sheldon Johnston
I would tend to agree with this.
Al
4-6 months? Try maybe 2-3 years. I can’t see prices going up for more than 60 bucks/BBL for at least next couple of years. Saudi wants to make sure that their oil gets to the market at any cost. They are not loosing any money even when oil at 40 or 20 dollar. I think the days of 100$ oil is way behind us now.
I think, this is a high time for Alberta to make some tough choices like sales tax. About 25 percent of revenue come from oil and that revenue will be replaced by a combination of sales tax and adjustments to flat tax income tax rate. Alberta will have to do that – can’t see any other choice. I know its not the most popular option but some sales tax will save the province from a collapse. Alberta needs to get out of this boom and bust cycle that is heavily dependent on what happens with oil prices and the only way to do this is sales tax.
Itchy
There is an important difference between the last oil price meltdown in 2008/09 and this one, as it relates to the real estate market. In 2004/2005 it became obvious to thousands of people that putting 6 thousand dollars down as a deposit on a new home build, taking possession 10 or 12 months later and flipping it for 100,000 profit, was a great way to make easy money. Same with condo’s…..remember the lineups for every new development? Some were going to live in them, but many were speculators. By 2007, there were so many people doing this that the market was swamped with inventory and prices started going down. This led to a loss of confidence in the housing market, and sentiment turned very negative. Then the recession hit, oil tanked and the job losses mounted, leading to less buyers and less confidence. This time we’re missing the speculator aspect as mortgage rules were tightened and there simply just wasn’t the big upside for flipping. In my opinion, this potential weakness in the housing market will simply be dependant on length and depth of the weakness in the price of oil. Figure that out and award yourself a trophy.