Housing demand

Marty Hope, Calgary HeraldPublished: Saturday, October 11, 2008

Despite a diversified economy, net migration into Red Deer is weakening -- and that could impact the pace of new home construction, says a federal agency.
A growing agriculture, expanding retail, wholesale, distribution and manufacturing industries, booming construction and a strong oil and gas market continue to drive the economy of the central Alberta city.
In May, major construction projects proposed, completed or under construction in the region stood at $2.9 billion, up 70 per cent from May 2007.
"However, net migration, one of the key drivers of household formation and housing demand, is weakening," says Richard Corriveau, Prairie region economist for Canada Mortgage and Housing Corp. "Moving into the forecast period, the weakening net migration will likely put a brake on the demand for housing."
After dropping by 11 per cent in 2007, single-detached starts are expected to drop another 59 per cent this year to 400 units. To the end of June, single starts fell by 69 per cent as builders prudently responded to rising inventories and huge selection in the competing resale market.
After reaching their second highest level in 21 years in 2007, multi-family starts will drop 40 per cent this year.
At the end of June, year-to-date multi-family starts were down 47 per cent. To reduce inventories in the face of a well-supplied competing resale market, builders will restrain the number of multi-family starts to 350 units this year.
Following five consecutive years of increases, resale activity should fall to 4,500 units in 2008, down 11 per cent from 2007. Year-to-date transactions fell by 22 per cent to the end of June 2008. A potential up tick in demand in the spring buying season of 2009 should also draw supply levels lower, and bring it back to balanced conditions. Expect sales to rebound to 4,650 units in 2009, up 3.3 per cent from 2008.
In the wake of a 32 per cent gain in 2007, the total average resale price is expected to rise by 5.4 per cent in 2008 to $285,000. Price pressure will ease further in 2009 with price growth being strongly held back by excess inventories. Look for prices to hit $295,000 in 2009, up 3.5 per cent from 2008, the weakest gain in 13 years.
The following is a look at some other areas in Alberta:
Grande Prairie
Currently the natural gas sector is a major driver of the Grande Prairie economy, but the industry slowed as inventory levels in North America reached a five-year high, causing gas prices to decline. In addition, the new royalty framework also introduced some uncertainty in the market.
The slowdown in the natural gas industry affected the economy in Grande Prairie and would eventually put a damper on housing demand.
The natural gas industry appears poised to recover in the latter half of 2008. However, the increased activity in the economy is not expected to make any major impacts to housing demand until 2009.
The city's forestry manufacturing industry has slowed with the downturn in the United States housing market, falling lumber prices, increased costs, and the rising Canadian dollar.
Inventory of lumber is also at elevated levels.
In 2007, single-detached starts in Grande Prairie ended the year with 784 units, down 26 per cent from 2006. The demand for housing has slowed from 2007, and inventories are currently at record levels.
Builders are pulling back starts in 2008 to allow the current inventory to be drawn down. Starts in 2008 are anticipated to fall to 400 units, down 49 per cent from a year earlier.
Multi-family starts reached a new record in 2007 at 839 units, up 49 per cent from 2006. Over the forecast period, multiple starts are expected to decline in response to the growing inventory on the market.
In 2008, starts are anticipated to drop by 79 per cent to 175 units.
The economic slowdown has also dampened activity on the MLS market. Sales fell from 3,017 in 2006 to 2,550 sales in 2007, representing a 15 per cent decline. In 2008, sales are expected to decrease by nearly nine per cent to 2,325 and rise by 3.2 per cent to 2,400 in 2009.
Following price growth of over 11 per cent in 2007, gains in the average resale price are expected to be minimal over the forecast period.
In 2008, the average price is expected to remain unchanged at $265,000, while in 2009 the average price is expected to increase by four per cent to $275,000. Price growth will improve next year in the face of more balanced conditions.
Lethbridge
Housing demand in this southern Alberta city is expected to be lower throughout the forecast period due largely to weaker population growth from net migration which is expected to decline in 2008 by more than half those record levels seen in 2006. Despite this, however, employment growth and economic trends remain favourable for the Lethbridge region.
Economic growth in Lethbridge will occur in agriculture as most grain prices are up this year and producers face a promising crop yield.
Furthermore, the region will benefit from the manufacturing and commercial/retail sectors.
Following a record year in 2007, single-detached starts are forecast to decline by nearly 16 per cent to 775 in 2008. A further decline of ten per cent is expected in 2009 to 700 starts. Builders continue to pull-back production in the face of rising supply and with lower demand.
To the end of June, 422 single-detached foundations were poured, a decline of 13 per cent over the previous year. The amount of units under construction hit a record high in April of this year of 750 units.
Inventories have remained at or near record levels throughout the year, with 64 units completed and unabsorbed at the end of May 2008 up from 22 in May 2007.
In 2007, Lethbridge multi-family starts more than doubled the performance in 2006. The forecast calls for starts to weaken in 2008 to 175, and then strengthen to 225 units in 2009.
Due to a record number of single-detached starts in 2007 and continued elevated levels so far this year, sales on the existing home market are expected to decline in 2008.
New listings have increased as buyers of new homes have put their existing home up for sale.
However, with lower demand in the market, supply levels have increased over the first six months of this year. the forecast is for 2,300 sales at the end of 2008, while in 2009 sales are forecast to increase by three per cent to 2,375.
In 2007, the resale market in Lethbridge experienced record price growth. At the end of June, the average resale price reached $244,727, up nearly 11 per cent over the corresponding period last year.
The average selling price for this year calls for slower with an increase in the average resale price of eight per cent to $247,500.
In 2009, average price growth is expected to near four per cent with the average resale price ending the year at $256,500.