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Friday, May 26, 2006

Alberta Real Estate: The Land of Milk and Honey

Business Edge published the following article yesterday, explaining just how well real estate is doing in the entire province, be it resale, new construction or commercial. They predict this will continue for at least another couple of years.

Real estate scene land of milk and honey
Experts predict markets still haven't peaked
By Laura Severs - Business Edge
Published: 05/25/2006 - Vol. 6, No. 11

It's still a lot of boom but very little bust for Alberta's residential real estate sector.

Despite markets that have been overheating for the past few years, industry professionals predict the peak has yet to be reached.

"I've been in the business for 34 years and I've never seen a market like this," Doug Kelly, senior vice-president with Calgary-based Carma Developers LP, said at a recent real estate forum held in Edmonton.

"Where are we in the residential cycle? We haven't reached the top yet and it probably won't happen for another couple of years."

Land prices five years ago were $20,000 to $30,000 an acre, Kelly notes. "Now it's being bid up to over $100,000 an acre. I'd guess you'd say it's out of control. Where it's going to end, I'm not sure."

Canada Mortgage and Housing Corp. (CMHC) senior market analyst Richard Goatcher said Edmonton's residential market is so strong that demand for single-detached homes is up 35 per cent for the first four months of this year, compared to last year when it set a record with more than 7,000 units. On the resale side, he noted, "the big story is that there is very little inventory and it's selling very fast."

But it's not just housing that's hot in Edmonton. Retail is staging its own rally in Alberta's capital.

There are 18 possible projects on the drawing table that could add 400 acres, or five million square feet, of leasable space - the majority of which are grocery-anchored, neighbourhood based strip malls.

"We sit at No. 1 in terms of retail space per capita right now, at 29.7 feet per person, and if you add another five million square feet, that's another five square feet per person," said Brad Merchant, president of the Northern Alberta Shopping Centre Association.

Edmonton reclaimed the top spot from Calgary and London, Ont., the latter being a market that grew with strong power- centre development.

"It's population growth, it's high discretionary income, it's buoyant retail sales, are all attracting more retail interest," said Merchant, adding retailers are also interested in Calgary.

Demand for space is coming from those already in the market and new entrants trying to capitalize on the growth they're seeing. While lack of skilled construction workers was a frequent theme throughout the one-day forum, there was also concern about retailers being able to find enough staff for their new stores.

Randy Ferguson, senior vice-president of Westcorp. Inc., an Edmonton-based real estate management and development company, noted one way to address the labour shortage is to set your company apart by making it more attractive to employees.

But while attention is already being paid to the labour shortage by all levels of government, forum participants warned that it will likely be the unexpected that will pull the rug out from under the real estate market.

Larry Pollock, president and CEO of the Edmonton-based Canadian Western Bank, noted that the growing middle classes in China and India could exert tremendous pressure on consumption-based economies.

On the other hand, he added, American consumers are just about tapped out and the growing U.S. deficit can only make things worse for that economy.

Others at the forum talked of how a major terrorism-related event or a pandemic could change Alberta's still-bullish real estate outlook. But most agreed that the province's vast oil reserves would act as a buffer to any major derailment of the real estate sector.

Meanwhile, CMHC officials said nationally, new housing construction is expected to cool off this year after a stronger-than-expected start.

Higher mortgage interest rates and soaring prices are proving to be a drag on the industry, CMHC noted.

Housing starts will likely reach 222,200 units this year, down from 225,481 units in 2005, but will continue above the 200,000 mark into 2007 for the sixth consecutive year, the agency said in its latest quarterly outlook.

"Housing starts this year will be stronger than previously forecast, mainly due to persistent strong demand in Alberta and British Columbia, but will not match last year's pace," CMHC chief economist Bob Dugan said in a release.

"Higher mortgage carrying costs, due to modest increases in mortgage rates, and rising house prices will temper housing demand this year and next."

Residential construction will continue to ease in 2007 to 204,100 units, the CMHC said.

Resale homes will register their second-best year at 478,400 units in 2006, down 0.9 per cent from 2005, according to data from the Multiple Listing Service.

Growth in the average MLS price is expected to accelerate from 10.2 per cent in 2005 to 11.2 per cent in 2006, "due entirely to a pickup in Alberta and B.C. Growth in houses prices is expected to slow in the rest of the country," the agency said.

"Over the medium term, housing starts will continue to slow gradually, reaching 184,400 units by 2010," Dugan noted. "The decrease in starts in the medium term will be more pronounced for single homes than for multiple-family dwellings, because multiple dwellings are less expensive than single homes. The aging population and increases in immigration will also contribute to the relative strength of multiple starts."


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