Edmonton Real Estate Board 2011 House Price Forecast – Part 2

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And we’re back from the break! This time it’s Patrick Shaver from UDI. When will people learn to stop using bad pictures on their powerpoint slides.

This is mostly residential housing info, but looking at growth in the Capital Region for 2011. Keep in mind that he’s a developer, representing developers and they have to develop what people want (affordability, density, location and amenities).

Patrick thinks that people want single family houses, or as he says “Fee Simple is King” in 2011. They want a front door and a patch of grass at the back. Housing Types – they’re looking at the 36-40′ lots, or a detached house on a 30′ lot. There’s a lot of good duplexes coming out with a good combination of attached garages. He thinks we’ll see more townhouses that are street facing.

How do we build higher density? High employment areas, urban villages in suburbs or infill areas. Young professionals, couples with kids, and empty nesters, but also those motivated by price.

Capital Region Board developed a growth plan in 2009, ratified by the provincial government last year (2010). They’ve laid out priority growth areas where they’ll focus infrastructure. They’re also making sure there’s focus on creating denser areas, and there’ are some interesting rural areas where they’re trying to create ‘clustered residential’.

The evolution of the ASP/NSP (area or neighbourhood structure plans) has moved to create denser areas, from 52 persons per net residential hectare to 80+ today and moving to 95 in the city.

– Edmonton to lead the region, but challenged by affordability (due to higher construction costs relatively speaking).
– Higher demand and price for large lot single family
– Higher density in some Edmonton Areas (Downtown, West Downtown, University, some suburban pods like around Heritage with slower absorption)

Current developing areas in Edmonton:
– West, south west and south east, with a good strip on north up against the north leg of the Anthony Henday.
– South is the only expandable option which doesn’t run into other municipalities.

We’re more decentralized, but so is the employment and growth.
– St Albert and Sherwood Park – development is essentially the same as a suburb. Sherwood Park has a lot of variety in product. St. Albert has less smaller SF and doesn’t allow lane product.
– Leduc has some great product variety, and is part of the priority growth curve.
– Fort Saskatchwan is doing well, and the North West Upgrader is going ahead they’ll see some good growth.

Growth occurs here due to:
– Localized demand
– Availability of servicing
– Diversity of housing
– Cost of servicing
– Attitude of municipalities

The 5-year trend forecast for housing starts is going to be modest increases, which levels off. 2010 will be better growth (which makes sense because starts are a lagging economic indicator).

People are looking for more amenities, sustainable/smart/low impact developments.

Patrick was a good speaker, and kept it nice and brief.

We’re getting down to it, with Ian Glassford, CFO of Servus Credit Union. He’s a bit of a quick talker, but reasonably entertaining.

Ian’s very dubious about the possibility of a double dip, but it’s a very divergent economy. The developed economies are a little weak, but there’s lot of positive items. The US, India and China are moving forwards and growing, which can pull the world along.

The IMF Global Outlook lines up with what Servus thinks, with a slower, more stable growth and emergence from the recession. The 2009 doom and gloom was pretty well founded, with advanced economies at -3.2%. Imagine if the sovereign debt crisis hit then, instead of now. The US is still a basket-case, with terrible real estate markets and a crazy banking sector. When you break it down, Germany is carrying the EU’s growth and backstopping the promises of bailouts for Portugal and Ireland. If Germany gets into trouble, the promises become untenable.

Concerned about Government debt (globally), where slow growth plus slightly higher rates doesn’t really help reduce deficits. This can push some of the slower developed countries further down. We are globally dependant on a handful of countries (China, India, Germany). He does point out that in a bad employment and economic situation increased the risk of ‘dysfunctional behaviour’ by US politicians. That’s part of why he thinks we’re seeing acceptance of a cheaper US dollar. That allows (among other things) easier trade of their goods and eventual repayment of their foreign debts with cheaper dollars.

Ian thinks that Canada can beat the IMF forecast (2.7% GDP) if:
– Commodities hold in
– Rates stay low
– Dollar doesn’t get too strong
– But we’ll hit a ceiling until the US gets it’s act together

Patrick’s made the interesting comment for an economist that he doesn’t understand the Chinese economy and that he has a vague concern that they’re stockpiling commodities (which would kind of make sense).
The Bank of Canada gets the risk from the dollar and rates. My favourite quote of the day: Rates that are too low for too long create stupidity.

Interest Rates – Short Term
– Modest upward pressure on rates
– Conditions won’t support meaningful movement until 2012
– The bank used to say a 3% increase in the dollar has the same drag on the economy as a 1% increase in rates. That’s an older formula, but the principle still applies.
– A .5%-.75% hike isn’t unreasonable. We’ve already been through a 0.75% hike, and we can handle it.
– Watch capacity utilization, which might cause faster action by the BofC

Interest Rates – Medium Term 1-2 years out
– There is still ‘considerable monetary stimulus in place’, which is the same as ‘my foot is still on the gas’. Pulling it back would be a 1-2%, but it’s not likely to move until there’s action on inflation
– EQ2 was to get money out of the US banks hands, by pushing yields so low that the banks had to lend it and get it out.
– 5 year rates will move in anticipation, but it’s still a ways out.

How does the US get out of debt? The classic solution is with inflation, which is a worry 2-5 years out.

– Ho-hum is Ian’s prediction.
– Housing is more about where you live now, which is better. It gets people out of thinking of their house as making or losing money, and into where they live.

Ian’s going through his 2008 slides to compare what they thought would happen which would cause an Orderly Correction. It does seem to apply, and there’s some interesting math I can provide more for you if you’re curious (just leave a comment).
– Alberta should fare better than most, with a recovery well underway, and a Central Bank which recognizes the importance of a supportive rate environment.

Here’s Richard Goatcher from CMHC

– Employment stats: Full-time exceeding part-time job creation. We’re looking at 5.7% unemployment this year, which is back to a strong demand and helps confidence.
– Edmonton’s 2010 job growth was just barely positive, and the 2011 forecast is ~15,000 which is 2%. 2012 is when the economy really starts to get rolling.
– Interest Rates – Later, rather than sooner.
– Carrying costs – minor changes, with costs staying below the peak 2007 levels.
– MLS Sales – we’re a little slow compared to the past 10 years. 2011 will be up a little bit over 2010 sales, starting off slow and seeing some more movement through the mid-end of the year.
– Listing Supply – We’re still above the 2003-2005 times, and sales to active listing ratio is in buyer’s market territory around 14% right now.
– Average price last year was $329 and now we’re at $308. They’re going to see an average annual price change of 1%, but the front half of the year will be the up to balance the down in the last half of the year.
– There’s some interesting stuff in his slide deck about housing starts, but that’s not an important number at the moment. It’s more about inventory adjustment than market movement. Again, leave a comment and I’ll send a copy of his slide deck over.
– Edmonton Average House Price predictions – Year over year will be essentially the same, but month over month will vary substantially.
– Rental housing inventory which still remains very low (and has since 2005)
– Vacancy rates are coming back down, forecast to drop below 3.5%. (You typically need to see vacancy below 2% to see rental increases over inflation).
– Rents held in 2010 at just over $1,000 for a 2-bedroom on average, but we’ll move up by 2% or so in 2011.

CMHC’s prediction in a nutshell: Next year will be better than this year. 2011 will see slight progression and modest gains. 2012 will really get things moving.

Ron Hutchinson is putting in a quick plug to get Realtors to contact their MP’s and discourage them from increasing down-payments or lowering amortization limits.

MLS Edmonton Housing Price Forecast

Here’s the main event, with RAE President Chris Mooney reviewing the resale housing market for 2011.
– Things moved very quickly in 2010, and the rush caused a swell and drop back in inventory towards the end of the year.
– Prices and sales keep going up and down, rolling along, causing people to react to it like a dodgeball game.
– We’ll start going up towards the end of the year and the next potentially hitting 2007 prices.
– National sales stats get skewed by bigger centres (Vancouver Toronto), and Edmonton seems to move out of step with the national numbers.

– DOM is about 13 days longer in 2010 compared to 2009.
– Inventory is back down around 6,000, which is a little more than what we’d like, but still fine.
– There’s some more interesting numbers about 2010 in review, which I’ll spin into a new post in a little bit.

2011 Real Estate Forecasts!
– Rural and Recreational – Good inventory and DOM will be >100. People are still suckered in by purchasing more US property.
– Commercial/Industrial/Business – Trending upwards with values over $300 Million. Remember, lots of commercial isn’t reported because they sell privately, using a Realtor but without using ICX.
– Multi-Family – Most multi-family sales will remain as rentals. Unabsorbed condos will enter the rental pool, with entry level prices depressed and being a buyer’s opportunity. Forecast low volume but steady.
– Residential Single Family forecast – Prices will increase 3% in 2011. Inventory will hit 7,000 in the spring and go back to normal in the second half of the year. Sales will be up slightly from 10,400 to 11,000.
– Condos – Sales and prices to remain static, with new completions keeping prices in check.
– MLS System Overall – Total sales up from 18.293 to 19,500 and the total value to be up to $7 billion (last seen in 2008).

The Edmonton housing market is stable and ‘normal’. The year will have higher DOM and inventory through Q2, and inventory will drop in Q3-Q4 with DOM falling back to 45 days. Buyers have time to make a good decision, and sellers can sell, but require patience, site improvements (staging) and appropriate pricing.

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