CaLGaRy S EConomiC EdGE

Transcription

1 CaLGaRy S EConomiC EdGE CREB 2012 calgary housing market forecast update August 15,

2 CREB 300 Manning Road NE Calgary, Alberta T2E 8K4, Canada Phone: Fax: CREB. All rights reserved. Note that housing data was adjusted in February 2012 to reflect benchmark pricing and some sale activity was excluded to better reflect residential activity. 2 CREB

3 contents highlights economic update 4 global markets 4 euro area 5 united states 5 china 6 canada 6 alberta 7 calgary cma 8 economic risk 12 summary 12 short term risks 12 calgary housing market 13 calgary new home market 13 calgary resale market 14 single family 16 condominiums 17 surrounding towns 18 summary 19 forecast summary 20 sources 21 Global economic risk continues to dampen growth prospects. Calgary experiencing strong gains in full-time employment growth. Housing starts activity picking up following tightening in the resale market. Supply shortfalls in the single family market and tighter mortgage rules will slow sales activity in the second half of the year. Tight conditions in the single family market have boosted activity in the condominium market and surrounding towns. Moderate price improvement expected, but will remain below peak pricing calgary housing market forecast update 3

4 economic update GLoBaL markets Unexpected gains by the end of the first quarter of this year brought on an air of increased optimism, primarily driven by positive U.S. indicators. However, by the second quarter, the realization that factors influencing the economy had not fundamentally changed curbed some of this optimism. The European crisis continues to weigh on financial markets, confidence and global growth. Fiscal uncertainty in the U.S. economy continues to dampen recovery in the housing and credit markets. There is also concern over slowing growth in China and other emerging countries. Collectively, these factors placed a downward drag on global economic growth prospects for the remainder of the year. Share of real global GdP (%) 2011 (E) Canada 2% Euro area 14% Rest of the World 16% United States 19% China 14% Emerging and Developing Economies 35% Global economic growth prospects are expected to total 3.1 per cent for this year, lower than previous expectations 1. This revision is related to expectations of a Eurozone recession, anemic growth in the U.S. and slowing growth in China. These three areas represent 47 per cent of real global GDP 2, so it is no surprise all eyes are focused on indicators and policy measures reports from these regions. source: International Monetary Fund, World Economic Outlook Database, April CREB

5 EuRo area Europe was mostly forgotten in the first few months of the year, but election results, concerns on countries ability to pay debts and speculation on a breakup of the Eurozone resurfaced. Economic conditions continue to deteriorate as many Euro-area countries face more restrictive financial conditions, additional austerity measures, weakening economic activity, increased vulnerabilities in the sovereign and banking sector and low confidence in the ability of policy makers to implement timely initiatives to contain the credit crisis. Forecasters expect the 2012 GDP to contract in the Eurozone, with a modest recovery in united StatES Many economic indicators at the end of the first quarter pointed toward better-than-expected improvements in the U.S. economy. While the economy is expected to grow, the spring boost was premature and expectations have moderated. U.S. economic growth is expected to be just below two per cent, assuming that the fiscal cliff* is avoided through amendments to current policy 1. The uncertainty regarding the presidential election in November combined with continued weakness in the housing sector and risks associated with the Euro area and China are causing cash rich businesses to reconsider new investment and hiring plans 1. A NOTE ON U.S. HOUSING: Persistently high unemployment, coupled with large inventories and tight underwriting standards for mortgages, are keeping the U.S. housing market weak. While there is debate on whether the market has hit the bottom of the trough, it will be some time before the U.S. housing market returns to normal. * The term fiscal cliff refers to severe fiscal tightening set to take place at the beginning of 2013, and includes the expiry of various tax cuts and a reduction in government spending calgary housing market forecast update 5

6 China Forecasters have lowered their 2012 growth expectations for China. Second quarter growth was a disappointment, falling to 7.6 per cent in Q2 compared to 8.1 per cent in Q1 3. However, The People s Bank of China has eased monetary policy in an attempt to encourage domestic growth as external demand from Europe slows and their inflation pressure has eased. As China s growth fell short of expectations, there was an impact on commodity prices, a significant factor impacting the Canadian economy. This in part contributed to recent declines in commodity prices. However, China s appetite for energy and commodities will provide long-term opportunities for Canadian producers. Canada The Canadian economy recorded stable growth in 2011 despite global economic concerns particularily with our southern neighbour. However, we cannot forget the importance of the U.S. to our economy and in 2012, the global situation has not changed much. The weak U.S. recovery, combined with slower global growth, will lower Canadian export growth. However, business investment and consumption growth will fuel moderate overall economic growth for the rest of the year. 6 CREB

7 alberta Alberta has regained its title as the fastest growing province in Canada. Following GDP growth estimates of 5.2 per cent in 2011 and a forecast of three-per-cent gains this year, the Alberta economy will expand by more than any other province in the country for the second consecutive year 4. The key drivers are gains in the oil sector and strong population growth, causing some to draw comparisons to the heightened activity of the mid-2000s. But it is important to note the natural gas market remains weak, and this may result in further restructuring and consolidation. Investment growth in the oil sector will contribute to gains in employment and wages throughout the province for the remainder of this year. NOTE: OIL PRICES Less optimistic assumptions about the global economy have resulted in a downgrade in expected global oil demand growth for the remainder of the year 5. The supply-and-demand balance measured by the EIA is showing signs of a looser market. As a result, price forecasts have been downgraded from nearly $98 per barrel in January to $93 today 5. The agency notes that both upside and downside risks are associated with short-term prices. On the upside, geopolitical risk in Middle Eastern countries and current Iranian sanctions pose risk to the supply side of the market and that could drive up prices. On the downside, further weakening in the emerging countries growth could push oil prices lower. On the whole, the risks should balance, allowing oil prices to stabilize for the rest of the year. GdP growth comparison oil and natural gas prices Canada B.C. Alberta Saskatchewan Manitoba Ontario Quebec ($U.S. / BBL) ($U.S. / MMBTU) New Brunswick Nova Scotia P.E.I Newfoundland & Labrador E 2012F Source: Forecast by TD Economics as at April 2012 West Texas Intermediate Oil Price Henry Hub Natural Gas Price Source: Statistics Canada 2012 calgary housing market forecast update 7

8 CaLGaRy Cma A NOTE ON ENERGY: Oil companies face some near-term challenges, including limited access to diversified markets, and that has led to pricing discounts on their oil. However, companies have committed to sustainable development in the oil sands. This includes better management of their labour force, through longer development cycles, helping them avoid escalating costs associated with labour shortages. Calgary Cma GdP growth Y/Y % Change 8.00% 6.00% 4.00% 2.00% 0.00% Forecast Even the robust Calgary market is not sheltered from global economic risk, but the city is benefiting from economic growth, fuelled in part by energy sector growth. Following a period of reduced energy investment in the province, investment levels started to pick up once again in 2011, although at a slower pace. This has had a positive economic impact on our city. According to the Conference Board of Canada, Calgary CMA 2011 GDP growth reached a staggering five per cent. While this pace is not expected to be maintained for 2012, it is forecasted to remain relatively strong at 3.84 per cent % -4.00% -6.00% Source: Conference Board of Canada Estimate, Conference Board of Canada Forecast, Aug 2012 While current prospects remain positive, it should be noted there are some underlying risks in the energy sector. Current projects are well funded. However, proposed projects may be reconsidered pending developments in North American oil supplies, energy prices and pipeline approvals. 8 CREB

9 Overall, companies commitment to the energy capital will continue to fuel economic growth in the Calgary area, translating into improving employment prospects in the region, boosting migration flows and the housing sector over several years. In 2011, total employment grew by nearly three per cent, and is forecasted to growth by another 4.06 per cent this year 6. Employment growth in 2012 has shifted from part-time to fulltime. Full-time employment has grown by six per cent, compared to a five-per-cent decline in part-time employment after the second quarter. Both full-time and part-time wages have improved in the province. These factors bode well for supporting growth in the housing market throughout the forecast period. Calgary Cma employment growth Calgary Cma full and part time employment Y/Y % Change Average Annual Employed 50, % 800,000 40, % 6% Forecast 750, ,000 30,000 20,000 10, % 650, % 600,000-10, % 550,000-20,000-30, % 500, % Change (Y/Y) Total Employment Source: Seasonally adjusted data, Statistics Canada, Conference Board of Canada Forecast, Aug 2012 Full-Time Employment Growth (Y/Y) Part-Time Employment Growth (Y/Y) Unemployment Rate Source: Statistics Canada, Seasonally Adjusted 3 month MA 2012 calgary housing market forecast update 9

10 CaLGaRy Cma ContinuEd... There has also been a shift in employment growth by age cohorts. In 2011, there were job losses for individuals between the ages of 15 and 24 years, with growth in the remaining age groups. However, after the first half of 2012, the age group has seen employment growth. This segment typically represents the first-time home buyer. Employment growth in this sector will help fuel growth in housing demand. Original migration estimates for 2011 were significantly higher for the Calgary Region compared to actual figures provided by Statistics Canada. While 2011 figures are lower, a significant boost is expected in Civic census results 7 indicate net migration doubled in 2012 over 2011 figures. At the same time, vacancy levels in the rental market dropped to 2.5 per cent 8, and that will push up rental costs this year. In addition, recent tightening in the mortgage lending rules may keep people in rental properties longer. While there have been some new construction of rental apartments, there will not be enough new units to ease pressure. Calgary employment by age 40,000 30,000 20,000 10, ,000-20,000 Calgary CMA 15 to 24 years Calgary CMA years Many migrants rent first, but will turn to ownership as rental rates increase. This Calgary CMA years Source: Statistics Canada, seasonally adjusted 3 month MA will continue to support housing demand for the next few years. 10 CREB

11 Calgary Cma net migration 30,000 25,000 20,000 15,000 10,000 5, , City of Calgary Source: City of Calgary annual Census NOTE: INTEREST RATES AND CHANGES TO MORTGAGE REQUIREMENTS The Bank of Canada s overnight interest rate remains unchanged, despite concerns regarding consumers high debt-to-income ratios. While the housing sector is typically cooled through an interest rate increase, the Bank of Canada did not want to apply a measure that could discourage business investment and cause an increase in our exchange rates, which would hurt our already struggling export market. On this basis, CMHC and the Office of the Superintendent of Financial Institutions (OSFI) tightened mortgage lending requirements to curb household debt accumulation, making the economy subject to less risk in the event of a shock. The short-term impact of these actions on the housing market will vary across the country. The Bank of Canada, meanwhile, has signaled that interest rates will remain low for the rest of the year calgary housing market forecast update 11

12 economic risk summary Short Term Risks This is a time of significant uncertainty. Calgary is sensitive to significant changes in the oil sector, and that has a domino effect on employment, migration, consumer confidence and ultimately the housing sector. The market has realized the high side of its potential after the first half of the year, despite the risks. This has pushed growth to levels higher than expected and led to concerns about labour shortages throughout the region. If many of the external risks do not come to fruition and the local economy avoids any significant blows, the Calgary economy should benefit from relatively strong growth for the remainder of the year. Europe is the most significant global economic risk. Delayed or insufficient policy action could escalate the crisis. The periphery countries also need to remain on track with policy reform commitments, which include a better banking and fiscal union. While many expect policymakers will follow up with some measures, there is uncertainty over whether those measures will be enough. The U.S. continues to experience political division on how to deal with spending reductions in the federal budget, and there will not be any clarity until after the November presidential election. This may cause businesses to delay investment decisions, further weakening already modest growth prospects. Easing of restrictive policies in emerging countries should gain traction in the second half of this year, but if economic growth particularly in China remains lower than expected, this can cause a decline in demand for commodities and force down prices. The high debt-to-personal disposable income ratios raised warning bells, as the Canadian economy would be exposed to more risk in the event of another economic shock. However, recent measures to slow household debt accumulation could dampen household spending, and that could spill over into other areas of the economy. 12 CREB

13 calgary housing market CaLGaRy new home market Housing starts are once again on the rise after several years of weak activity caused by a soft economy and oversupply in the resale market. However, improving economic conditions, combined with reduced supply in the resale market, has resulted in a boost for the new home market. Forecasts anticipate a 25-percent rise in 2012 starts, with largest gains expected in multi-family apartment condominium construction 9. Cautious builders are controlling inventory levels by doing less speculative building and securing more pre-sales before projects are started. This will help avoid a rise in resale inventories as new spec homes come on the market. The level of forecasted new home construction is consistent with household formation expectations. This combined, with the level of inventory in the market, points towards continued stability throughout the entire Calgary housing market. Calgary Cma total housing starts 18,000 16,000 Forecast 14,000 12,000 10,000 8,000 6,000 4,000 2, Single Family Multi Family Source: CMHC, CMHC Forecast Spring calgary housing market forecast update 13

14 CaLGaRy RESaLE market A predicted housing price correction in Canada of per cent is driven by activity in Vancouver and Toronto. The Alberta Housing Market, meanwhile, has been slow to recover from recessionary lows and will likely buck the national trend and strengthen over the next few years 4. Calgary total sales 30,000 25,000 Calgary is experiencing a solid economic recovery, supported by accelerating growth in the oil sector and employment gains in well-paying, full-time jobs. This is against the backdrop of housing prices that are well below peak levels, making us one of the most affordable metro cities in Canada. After the first seven months of the year, City of Calgary sales totaled 13,684 units, a 16.5-per-cent increase over The sales jump can be attributed to employment gains, migration growth and easing concerns over the local economy. Sales growth is outpacing expectations, following an extremely active spring market, particularly in the single family sector. Sales typically slow in the second half of the year, but this year additional 20,000 15,000 10,000 5,000 - SF Sales Apartment Sales TH Sales 10 Year Average Source: CREB factors may cause further retraction. This includes the impact of the tighter mortgage rules (consumers will have to earn roughly 10 per cent more to finance a comparable house). In addition, the shortage of single family city listings and continued economic uncertainty will take steam out of the market. 14 CREB

15 Still, given the robust sales in the first half of the year, overall sales activity within the city limits is anticipated to rise by 11 per cent over 2011, slightly higher than the 10-per-cent city-wide growth previously forecasted. Three per cent fewer homeowners are listing their homes than in Any decision to sell is based on several factors, but those who purchased their home during the peak pricing period in 2007 are less likely to list their home because prices have not fully recovered. And uncertainty in the global markets, combined with mortgage rule changes and the debate on what will happen to housing prices, has weighed on the moveup buyer. As the year progresses, we anticipate the number of new listings will remain three per cent lower than levels recorded in NOTE: BENCHMARK PRICE? CREB has recently moved to benchmark pricing because it reflects price movements more accurately than average or median price measures, which can be skewed by the composition of what is sold. For example, if more high-end homes sell in a given month, this can push up both median and average prices, giving the appearance of an increasing price trend. This is particularly problematic for communities with a small number of transactions. Like the consumer price index, the benchmark price is an apples-to-apples comparison that can give you a sense of general price appreciation or depreciation for various types of homes calgary housing market forecast update 15

16 SinGLE FamiLy The single family benchmark price demonstrates Calgary is on the path to recovery this year. However, with average year-to-date benchmark price increases above five per cent, the recovery is occurring slightly faster than anticipated. This has primarily been because supply is tightening while demand is growing in the single family market. Sales are rising by double digit rates relative to the decline in listings. Two key measures - months of supply and sales-to-new-listings ratios - point towards an undersupplied market and conditions that favour sellers. It is important to note that 2012 is much different both in terms of the economy and the overall housing market than the mid-2000s, when activity was at its peak. Other housing market segments, including the condominium apartment market, surrounding towns and new homes, are not seeing the same conditions. Calgary single family months of inventory SF Months of Supply 3 month MA BALANCED Source: CREB Single family home sales will cool in the second half of the year, as a shortfall in supply will affect demand, among other factors. As demand cools, we can anticipate the market returning to more balanced conditions and an easing in upward pressure on prices. Assuming that job and wage growth continue at forecasted levels, and considering the tightened mortgage rules, single-family benchmark prices are expected to increase by an annual rate of three per cent. 16 CREB

17 Condominium After the first seven months of this year, total condominium (apartment and townhouse) sales are 10 per cent higher than in 2011, and slightly higher than forecasted levels of six per cent. The lack of available listings in single family homes has driven many consumers to the condominium market which has adequate supply levels. As sales activity typically slows in fall and winter, we anticipate 2012 annual condominium sales will end this year up by seven per cent over Calgary apartment prices 340, , , , ,000 In the apartment condominium market, the rise in sales activity has helped reduce inventory, and that is generating positive price momentum this year. Condominium apartment prices will end the year just slightly higher than last year s levels, down still by double digits from the peak of the market. It will take some time for condominium prices to reach the highs seen in , , ,000 Apartment Average Price Apartment Median Price Apartment Benchmark Price Source: CREB 2012 calgary housing market forecast update 17

18 SuRRoundinG towns CREB towns ytd total sales YTD-JULY 4,000 3,500 3,000 2,500 2,000 1,500 1, SF Sales Apartment Sales TH Sales 10 Year Average Source: CREB Sales in surrounding towns after the first seven months of this year are 42 per cent ahead of the 2011 pace, and listings are up by 11 per cent. The strong sales activity helped bring down inventories, pushing the market to levels that are more balanced. Prices, however, are up only two per cent over this period, primarily driven by single family home activity. With fewer choices in the single family market within city limits, more consumers, particularly those with small families, are turning to surrounding towns, which offer more home at a lower price. Single family home prices in surrounding towns are roughly eight per cent below peak levels on average and 23 per cent lower than a typical single family home in Calgary. These surrounding communities will continue to draw young families, keeping activity lively for the remainder of the year. 18 CREB

19 Summary After the first seven months, the Calgary housing market has outperformed expectations this year. While single-family benchmark price increases are above five per cent, the Calgary area is still short of the peak pricing of Sales are simply returning to typical levels of activity. Expectations are relatively bullish in the city despite overhanging global uncertainty. However, concerns in the oil sector and continued weakness in the natural gas sector are issues that will keep consumers wary. While consumers are aware of the economic risk when it comes to housing, many are thinking about job security and long-term potential. Based on activity this year, consumers are comfortable purchasing in a city where the longterm outlook is prosperous and the housing industry has yet to fully recover. While the pace of growth will likely cool over the second half of the year, the resale housing market will stay on the path to recovery into calgary housing market forecast update

20 forecast summary F trend FoRECaStER EConomiC indicators Calgary GdP Growth Conference Board of Canada Calgary net migration 22,288 9,106 11,117 23,922 Conference Board of Canada average Residential mortgage Lending Rate 5 year Conference Board of Canada Wti oil Price (usd) U.S. Energy Information Administration henry hub Gas Price (usd) U.S. Energy Information Administration Calgary Employment Growth Conference Board of Canada mls RE-SaLE homes Single Family Sales 14,349 12,043 13,120 14,800 CREB Single Family Listings 22,270 36,633 24,056 23,100 CREB Single Family average annual Benchmark Price 386, , , ,123 CREB Condo Sales 6,320 5,175 5,377 5,675 CREB Condo Listings 10,319 11,422 10,013 9,872 CREB Condo apartment annual Benchmark Price 246, , , ,585 CREB F - Forecast 20 CREB

21 sources Sources 1. Bank of Canada, Monetary Policy Report, July International Monetary Fund, World Economic Outlook, April National Bureau of Statistics of China 4. TD Economics, Provincial Economic Forecast, July 9, Energy Information Administration (EIA), Short-term Energy Outlook, July Conference Board of Canada, Aug 2012 update 7. City of Calgary Civic Census Results conducted between April 1 and Canada Mortgage and Housing Corporation (CMHC) Rental Market Statistics, Spring Canada Mortgage and Housing Corporation (CMHC) Housing Market Calgary CMA, Spring 2012 TD Quarterly Economic Forecast, June 27, 2012 TD economics, Observation, July 6, 2012 TD economics, Provincial Economic Forecasts, July 9, 2012 RBC Ecnomics, Economic and Financial Market Outlook, June 2012 RBC Economics, Provincail Outlook, June 2012 The city of Calgary, Calgary & Region Economic Outlook Calgary Chamber of Commerce, 2012 Calgary and Alberta Economic Update, Spring 2012 Bank of Canada, Business Outlook Survey, Vol. 9.2, July 9, 2012 Energy Resources Conservation Board, Alberta s Energy Reserves 2011 and Suply/Demand Outlook calgary housing market forecast update 21

22 CREB 300 Manning Road NE Calgary, Alberta T2E 8K4, Canada Phone: Fax: CREB is a professional body of more than 5,100 licensed brokers and registered associates, representing 241 member offices. CREB is dedicated to enhancing the value, integrity and expertise of its REALTOR members. We are committed to equipping our members with the right tools, services and education to achieve professional excellence and, in turn, enabling REALTORS to offer the best possible service to their clients. Our REALTORS are committed to a high standard of professional conduct, ongoing education, and a strict Code of Ethics and standards of business practice. Using the services of a professional REALTOR can help consumers take full advantage of real estate opportunities while reducing their risks when buying or selling real estate. CREB operates and maintains the Multiple Listing Service (MLS ) System for Calgary and the surrounding area. Through the MLS System, members and, in turn, their clients have immediate access to the latest information on properties listed for sale. Through the MLS System, REALTORS can provide the buying and selling public with the broadest possible market exposure and the most complete and up-to-date market information. Copyright notice: 2012 CREB. All rights reserved. CREB grants reasonable rights of use of this publication s content solely for personal, corporate or public policy research, and educational purposes. This permission consists of the right to use the content for general reference purposes in written analyses and in the reporting of results, conclusions and forecasts, including the citation of limited amounts of supporting data extracted from this publication. Reasonable and limited rights of use are also permitted in commercial publications subject to the above criteria, and CREB s right to request that such use be discontinued for any reason. Any use of the publication s content must include the source of the information, including statistical data, acknowledged as follows: CREB 2012 Economic Outlook and Calgary Regional Housing Market Forecast.