No bubble in local housing market, say realtors
Strong housing to continue in Edmonton region with balanced price increase
By: Viola Pruss
| Posted: Saturday, Mar 15, 2014 06:00 am
Despite some frothy forecasts for Canada’s housing market, local realtors say this region is not a bubble waiting to burst. Yet there is reason for caution.
In recent weeks, analysts across Canada and abroad made headlines forecasting that real estate prices in the country could drop as much as 20 per cent in the next three to five years, due to speculative investment and developments in major centres like Vancouver, Toronto or Calgary.
But the Edmonton region’s growing job market and population provide a strong base for housing demand, which has the effect of isolating St. Albert and Edmonton from other regional economies, said Mark Cassidy with St. Albert ReMax Real Estate.
“We are anticipating prices not to remain the same but to actually move up a little bit,” he said. “Because there is going to be an increase in demand.”
Over the next few years, Alberta is expected to welcome another 100,000 migrants, he added. As more jobs become available the need for housing will continue to increase and builders will have their hands full to keep up with demand.
Prices will rise gradually because of demand but there is little worry that the market isn’t balanced, he said.
That doesn’t mean that a crash in Canadian housing markets would not affect the region, cautioned Todd Hirsch, chief economist with ATB Financial.
Vancouver’s market has been fueled by foreign – mostly Asian – investment that drives prices up, he said. Toronto, on the other hand, suffers from inflated condominium prices and developments based on speculative investment.
If housing prices were to collapse in these cities, the Canadian Mortgage and Housing Corporation (CMHC) and Canadian financial institutions would likely take some action to remedy the damage, he said.
“We might see banks and financial institutions … change the rules or the conditions upon which they lend,” he said. “Then it affects everyone because you can’t have one lending rule for Toronto and another lending rule for Edmonton.”
Changes could include higher down payments on mortgages or introducing higher rates for lending, he said. Subsequently, some homebuyers may not be able to enter the market as easily and would refrain from investing in real estate, he said.
“And if there are less buyers that could act as a bit of a drag on price if fewer people can’t afford to buy those homes,” he said.
Hirsch cautioned that there is no sign of imbalance in the local housing market now. He expects prices in the Edmonton region will continue to rise at a moderate level of five to 10 per cent over the next year as migration to the province continues and builders keep up with demand.
What often drives prices up are higher levels of income, added Greg Steele, president of the Realtors Association of Edmonton. He expects prices will only rise by two or three per cent over the next year.
Home prices in Edmonton are based on supply and demand but also on a person’s income, he said. Albertans have among the highest incomes in the country but salaries can only grow so much year-over-year, which in return affects a seller’s ability to charge more, he said.
Unlike migrants moving to Toronto or Vancouver, many newcomers to the Edmonton region cannot invest in big real estate right away, he added. That also keeps prices from going up too quickly, he said.
“The people that are coming here don’t have enough money to invest in real estate,” he said. “They are coming here for one reason; they are coming here for opportunity.”
Big market for $400,000 homes
Some price increases can already be seen in St. Albert, as inventory levels are low and many people are looking to buy, said Shirley Williams, owner of St. Albert Royal LePage Premier Real Estate.
Many sellers refrain from putting their homes on the market until the spring, Williams said. The few homes available sell quickly, especially those in the $400,000-range.
“We are seeing very quick turnaround on sales, they are going in one or two days,” she said.
That means buyers are now willing to spend more to find a home and sellers are able to ask more, she said. In February, sales activity was up 7.3 per cent compared to a year earlier, and sale prices for single family homes increased by 2.7 per cent.
She agreed that housing prices will continue to go up.
“We are more protected here in Alberta because of our oil and everything else that’s available,” she said. “I don’t think we will see big increases but I think we will see a steady, slight increase.”