Housing starts, resale prices expected to drop

Despite hopes for a rebound in 2009, the Canada Mortgage and Housing Corp. (CMHC) predicts housing starts and resale prices across the province will drop this year.

A CMHC report released this week said resale prices will drop for the first time since 1982. In Red Deer, the average house will sell for $271,000 this year, compared with a record high of $278,040 in 2008.

The city’s 2.5 per cent decline is still less than half the predicted provincial drop of 5.6 per cent.

“As listings rise and there aren’t as many buyers, it puts a lot of pressure on the market. But by 2010, we forecast prices to rise to another record high of $280,000,” said Lai Sing Louie, a senior analyst with the CMHC.

Louie said property owners in Red Deer have still done well over the past five years. In 2005, the average resale price was in the $160,000 range.

“Annual averages are a bit deceiving, they’re a bit like a roller-coaster. We’re seeing some price erosion now, but long-term homeowners have still done well in real estate in Red Deer,” he said.

The CMHC predicts Alberta’s multi-family housing market will drop by 55 per cent in 2009, citing a slower adjustment to the weakening economy than the single-family market.

It forecasts only 6,500 multi-family housing starts in Alberta in 2009, compared with 14,448 in 2008. Single-family units will fare slightly better, with 12,700 expected in 2009, compared with 14,700 the previous year. In Calgary, multi-family housing starts are forecast to drop a whopping 75.9 per cent.

“A lot of the high-rise condos were planned back in 2005 and 2006. . . . Even though we were in buyers’ market, once you start one of those condos, they take a while to complete so that’s why this market has been slower to adjust,” said Louie.

Red Deer, which saw a 63 per cent decrease in housing starts last year, won’t feel the effects as dramatically as other areas. Multi-family starts will decline to 200 from 205 in 2008, and the city will see 350 single-family housing starts versus 367 in 2008.

The 3.8 per cent decline in housing starts might seem like small beans compared with the 63 per cent drop last year, when only 572 starts were reported after a record 1,558 in 2007.

“What you have to remember is that 2007 was a year of incredible growth,” said Red Deer Mayor Morris Flewwelling.

Flewwelling said a steep drop back to normal numbers is to be expected after an economic boom, and argued that many people are still moving to Red Deer for jobs, even as the province reported it expects to lose 15,000 jobs and fall into recession this year.

Vacancy rates have also increased to 4.5 per cent, up from a record low of 0.5 per cent in 2006.

“My sense is that 2009 is going to be a year we endure and then we will climb back up again. Hopefully, the climb won’t be as dizzying as before,” said Flewwelling.

Gord Bontje, owner of local business Laebon Homes, said the statistics don’t tell the whole story. According to Bontje, sales slowed for his staff in mid-2007 and have just recently picked up again.

“We’re seeing excellent customer response and frankly, that’s in large part a reflection of the fact that first-time homebuyers can get unbelievably low rates. Like a four per cent mortgage­ — that’s almost breathtaking.”

Growth is expected to improve slightly in 2010 — in Red Deer, 675 housing starts are forecast next year, an increase of 22.7 per cent. Bontje said potential buyers should act now.

“I’ve been around a long time and I’ve seen these cycles come and go. If you’re a teacher or a police officer, somebody that’s not working in the oil business, it’s a phenomenal time to buy because things are so cheap,” he said.