2011 was a much better year than 2010 with MLS sales in central Alberta up 19.5%.  We are still a long ways from the 2007 boom at only at 73% of that year’s heady levels, but 2011 did get back to 2009 sales levels. 

At the same time our inventory of active listings has steadily dropped in most markets but especially in Red Deer, trending closer to balanced market conditions than we’ve seen in three years.  We are not back to that perfect balance yet, but if the current trend continues we could see those conditions later this spring. 

Everyone wants to know what prices are going to do.  Future predictions are very dangerous, but a simple law of economics states that when demand increases and supply decreases, prices will go up.  We have seen the relationship between supply and demand diminish over the last six months and know that a continuation of that trend will eventually see prices firm up. 

Our analysis of the median price of homes sold in Red Deer, Lacombe, Sylvan Lake, Ponoka, Innisfail, Blackfalds and Penhold over the past year shows that prices went down in the spring and summer and increased slightly the last six months.  The median price of homes in those markets is still down approximately 9% from the high in the second quarter of 2007.  While the median is not always and accurate representation of value, it does show us trends.  We believe the trend right now is up barring an economic collapse in Europe or the United States.  High oil prices continue to be the key factor in our economic well being. 

Red Deer – 2011 sales were up almost 13% over 2010.  Active listings as of Dec 31 this year are down an incredible 42% over Dec. 31, 2010.  The December sales to active listing ratio was 20.2% down from the previous month but probably just a reflection of a typically slower Christmas season. 

Lacombe – 2011 sales were up 8.4% over 2012.  Listings were slightly higher at the end of 2011 and the ratio of sales to active listings is currently 14% representing a market where the buyer still has an advantage. 

Sylvan Lake – 2011 sales managed to eke out a 1.9% increase over 2010.  Active listings as of Dec. 31, 2011 are finally trending down by 17% over 2010.  The sales to active listing ratio at only 5.6% suggests the Sylvan Lake market still heavily favours buyers.

Ponoka – 2011 sales were up 34% over 2010.  Active listings are about the same level as they were a year ago.  The sales to active listings ratio was down in December due to the Christmas slowdown, but still suggests a buyer’s market.  We expect to see a more balanced market in the spring. 

Blackfalds – 2011 sales are up 27% over 2011.  Active listings at Dec. 31, 2011 are down 22% from Dec. 2010.  The December sales to active listings ratio was 13.5% – still a buyer’s market, but the Blackfalds market is following Red Deer’s lead and quickly trending towards balance.

Central Alberta Market Update

Canada’s Economy Stalls in April – Dan Sumner – Economist, ATB Financial – June 30, 2010

The Canadian economy has been the golden child of developed nations during the last half year or so, but according to a Statistics Canada report released this morning, Canadian economic output stagnated in April.

Following seven consecutive months of very strong growth, Canadian gross domestic product (GDP) was unchanged in April 2010. GDP is a measurement of how much goods and services an economy produces, from the extraction of oil from Alberta’s oilsands to legal advice provided by a lawyer, the more stuff that an economy produces the richer a country is considered to be.

After the 2008/09 recession, Canada’s GDP rebounded very strongly, driven partly by strong gains in consumer spending which propped up GDP in areas like retail sales and the housing market. However, recently consumers have stopped to catch their breath and this is weighing on Canada’s overall economic growth.

Despite the stagnation in total Canadian GDP, output in Canada’s mining and oil and gas extraction sector, which is concentrated in Alberta, advanced by 0.5% in April. Statistics Canada noted that this was due to increased production of oil and oil services, while GDP from natural gas extraction shrank during the month.

The weak reading on Canadian GDP rounds out a host of other indicators which all show that Canada’s economy stalled during the second quarter, including manufacturing shipments, retail sales and housing market indicators.

Although Canada’s economy was largely expected to cool in the second half of the year it seems to be happening faster than many economists anticipated. While it is still far too early to say that the recent weakness is the beginning of a trend, economists will be closely watching these economic indicators moving forward.

The real estate market in central Alberta has not yet experienced the supply shortages and increasing demand we have been hearing so much about in the news. That phenomenon seems to be limited to Montreal, Toronto and Vancouver and is quite likely the result of very low interest rates and a sharp drop in new home construction over the past 2 years.

Very simply, real estate prices are dictated by the Supply of homes for sale and the number of buyers competing for those homes (Demand). When Supply increases and Demand doesn’t, prices will fall. When Demand increases and Supply doesn’t keep pace, prices will Increase. If Price increases and Supply keeps pace, Demand will decrease as affordability lessens. If Price decreases and Supply remains stable, Demand will increase. An increase or decrease in interest rates has the same effect as increase or decrease in Price. While all of that may seem a little confusing, understanding the Law of Supply and Demand will truly help us to interpret the local real estate market.

In most central Alberta markets, activity in the last two weeks of February slowed considerably which we can only attribute to all Canadian’s fascination with the Vancouver Olympics.

Ponoka – Active listings (Supply) are down almost 20% from the same period last year. February sales are unchanged from February 2009. Year to date sales in Ponoka are down 33% over the same period in 2009. The ratio between listings and sales in February was less than 10% suggesting there is still a strong advantage for buyers in this market. Prices will not increase in this environment until the number of sales relative to the inventory increases substantially.

Red Deer – the number of active listings (Supply) is 600 – down 5% from the same time in 2009 and sitting at a level that we believe is about right for a city of 90,000 people. February sales were even with the same period in 2008 at 114, but year to date sales are up almost 15% over last year. The ratio of listings to sales in February was almost 23% representing the most stable market in our area, almost a balanced market which is defined by CMHC as 25 – 30% turnover each month.

Sylvan Lake – Active listings have stabilized and are about the same as last year at this time. February sales are unchanged from February 2009 at 16. Year to date sales in Sylvan Lake are down 20% over the same period in 2009. The ratio between listings and sales in February was 10% indicating the same market conditions as our other centres where the buyer has an advantage.

Lacombe – Active listings (Supply) are down slightly from last year at this time while February 2010 sales were down 27% from February 2009. Year to date sales to the end of February 2010 are down 33% over the same period last year. The ratio between listings and sales in February was about 10% which indicates the market still favours buyers. Once the ratio between supply and demand reaches 25 – 30%, the market again favours sellers and prices will start to firm up.

All in all, the central Alberta market appears to be languishing a little behind the rest of the country. This can easily be attributed to a slower energy sector which now appears to be recovering somewhat. With that recovery we can expect the real estate market to firm up some, but we don’t expect to see much gain in prices for the next few months.

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