2016 Edmonton Real Estate Forecast: Live Blog
Every year, the REALTORS® Association of Edmonton hosts a very informative housing forecast seminar. Today I’m live blogging at the seminar, summarizing the thoughts from each presenter.
Steve Sedgwick, Chair, REALTORS® Association of Edmonton
We expect to see a continued decline in sales in 2016, but not a dramatic one (single family homes -2.5% year over year and condos down 2.7%, and 2.4% for all residential properties). Single family home prices are expected to drop by 2.7%, with higher inventory and lower sales, condo prices are also expected to drop by 2.7%. The Edmonton area remains one of the most affordable markets in Edmonton, with St. Albert, Sherwood Park and Beaumont seeing the highest average prices in the area.
Todd Hirsch, Chief Economist, ATB Financial
Very graciously mentioned that economists make forecasts because they’re asked to do it, not because they know what’s going to happen. Throughout his presentation, Mr. Hirsch explored scenarios and gave his opinion on the odds of each scenario occuring, which I’ve shared below.
Mr. Hirsh said if emerging markets suddenly rebounded in 2016, we could see oil prices go back to $80, but the odds of that happening are very low (75:1). Oil suddenly rebounding would not necessarily be in our province’s best interest, since energy companies are restructuring, bringing down costs and making the industry healthier over all, a process that needs to happen even though it’s very painful. Could oil drop to $20 a barrel? Mr. Hirsch says the odds of $20 oil in 2016 are about 20:1; he sees oil around $55 a barrel in 2016 (3:1 odds). If we did see oil at $55 a barrel by the end of the year, it would likely be enough to stabilize the industry, spark some optimism and bring a little bit of growth to the province’s energy industry. Could China’s stock market’s collapse? We will likely see continued moderation in China’s economy and continued volatility in their stock markets.
Interest rate hike: Odds are 10:1. There is inflation pressure on food but he expects growth in Canada’s economy will remain weak and we won’t see talk of rate increases until 2017, we may even see interest rates drop in 2016 (could interest rates be negative??). Unemployment is about 2.5 percentage points higher than it was a year ago in Alberta, sitting at about 7% and could go up to 8% (odds 4:1) but weekly earnings will certainly drop.
There are pretty good odds that we will see negative net migration in Alberta in 2016 (2:1), but he’s not expecting a “mass stampede of people leaving the province” like we saw in the ’80s. The rest of the Canadian economy really isn’t in great shape, but BC does have a better job market and we will likely see some outflow to the west.
On the housing market… he sees prices dropping 5-10% in the province fairly likely (3:1 odds) but more than 20% decrease (a.k.a. a severe downturn) odds at about 7:1, in other words, unlikely but possible. Yikes. He doesn’t think we will see default rates like we have in previous downturns because rates are low and more households have dual income than in previous downturns. He thinks prices dropping province wide by about 5% is the most likely scenario.
The first half of 2016 will likely be the worst part of the year (a very modest recession is likely) but the second half of the year could actually see improvements. The economy in Alberta will likely diversify naturally (not because of anything the government does) partly because of our low dollar which will help forestry, agriculture and tourism and also fields such as digital marketing and other fields that found it tough to start up with high office and staffing costs.
He does see the Canadian dollar dipping below 70 cents in the first half of the year, but doesn’t see it going to a record low with weak oil prices and growth in the US economy.
John Rose, Chief Economist, City of Edmonton
Our region saw a positive rate of job growth in 2015, but also saw a growing labour force, which lead to a higher unemployment rate which will likely continue to rise in the Edmonton area in 2016, up to 6.5-7%. The Edmonton area saw 24,000 net new jobs in the first 11 months of 2015 (final numbers expected at the end of the week) with gains in Construction, Public Administration, Retail and Healthcare and losses in Manufacturing, Finance and other services. The Province as a whole saw 14,000 net jobs, which means if you take out Edmonton, the province actually lost 10,000 jobs. He expects the number at the end of the week will show net zero growth in jobs for the province. He is concerned by the loss in manufacturing jobs, as all the provincial loss in this sector has been in the Edmonton area. There are problems on the horizon with bad employment numbers expected in the province (particularly Red Deer and Drumheller) at the end of the week, although Edmonton has been the best performing area in the province with regards to employment.
Looking at other metropolitan areas in the country Edmonton has the highest employment level and plenty of momentum:
Mr. Rose expects Edmonton to outperform the rest of Alberta, due to its relatively diverse economy, but growth will be low in 2016 (0.7-1%). A recession scenario for the Edmonton area would require low oil prices to persist and a sharp decrease in spending from the provincial government. Going forward, he expects the province’s economy to look a lot like the country as a whole, instead of outperforming it like we’ve become accustomed to, but Edmonton will continue to outperform the province and other metropolitan areas in Canada.
- consumer confidence drops because of all the bad press
- low oil prices persist into 2017 leading to energy investment slump and decreased government spending
- whatever comes from the new budget
- deeper slowdown in commodity dependent emerging markets
- stricter controls on emissions and opposition to energy investments
- US recovery gains momentum
- US oil production and investments fall firming up NA energy prices
- Canadian business investment and exports improve
- China and other Asian countries succeed in stimulating more rapid growth
Mr. Rose will be updating his projections and releasing a report by the end of the month.
Christina Butchart, Senior Market Analyst, CMHC
Although net migration into Edmonton will decrease in the coming years, it will still be positive. Edmonton vacancy rate has increased, largely because of a big increase in the number of rental units available in Edmonton; 2015 saw a huge number of new rental units under construction. They expect the rental rate to increase, even with a higher vacancy rate, because new units will typically ask higher prices, where older, existing units may have to decrease rates or offer incentives. As far as condos that are rented out as investments go… the vacancy rate is over 5% now, as the number of condos being rented out has steadily increased over the past 5 or so years. We may see some of these owners start to put their units on the market for sale.
The resale market is leaning more in favour of the buyer, as inventory has increased and the sales to listings ratio has dropped. Prices have stalled, and will start to soften in the coming months.
New home market: we tend to see more construction when there are fewer resale listings, and less construction when resale inventory rises, and we have seen that in Edmonton since the end of 2014. Even though construction has pulled back, the inventory of completed homes is on the rise, but nowhere near what we saw in 2008 and 2009. Completed homes and those under construction combined are trending down, which is good. Single detached construction should continue to decline in 2016, but could improve in 2017. Prices on the new home market actually were on the rise in 2015, except for the past couple of months. The increase is actually due to the fact that more higher end homes were built and sold in 2015 than previous years. She expects very modest growth in new home prices in ’16 & ’17. Multi-family starts were really high in Edmonton in 2015, well ahead of ’13 & ’14, which we know is largely due to new high rises going up downtown. We hit an all time high of multi-family homes started in 2015 (more than 10,000 units), well ahead of what we saw in 2008, and the next few years should see much lower starts in the multi-family market.
Bruce Edgelow, VP Strategic Initiatives, ATB Financial
“Lower for longer” sums up what Mr. Edgelow sees in the energy sector in Alberta. He gave some examples of lost contracts, jobs getting re-bids half way through, and some companies doing work for free as examples of what is happening in the oil patch right now. The average price of oil for the last 100 years, is about $50 a barrel, it’s only within the last decade that prices have exceeded $50 largely due to increasing demand from China.
Out of 20+ potential liquid natural gas projects in the province, ATB only expects 1-3 of them to go ahead. Oil price forecasts range from $15-$80 from various sources for 2016, but the most common forecasts are around $50 into 2018. In the ’90s Canada attracted 37% of North American oil and gas investments, today it has been reduced to 17%. There is a lot of uncertainty in the market, from the environmental, regulatory, global economy, over supply and other perspectives. He noted his daily commute in Calgary is 15 minutes shorter than it was last year, simply because there are fewer cars on the road. There are 300 floors of unoccupied office space in Calgary and a number of towers under construction. More pain to come in 2016 with more cuts, and layoffs. He noted we’ve been sheltered in Edmonton, and he hopes it continues, but we’re not living in it like people are in other parts of the province.
And that brought the energy level down in the room… nice to see that things weren’t sugar coated this year, as they have been in the past.
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.