Edmonton real estate market burdened by job losses, stunted growth

Demand for new homes in Edmonton has "tempered" in light of a weaker market and and reduced consumer confidence, according to new reports from the Canada Mortgage and Housing Corporation (CMHC).

'A weaker labour market, slower migration and reduced consumer confidence are tempering demand'

Economic conditions are prompting builders to start construction of new homes. (Reuters)

Demand for new homes in Edmonton has "tempered" in light of a weaker market and and reduced consumer confidence, according to new reports from the Canada Mortgage and Housing Corporation (CMHC).

According to the CMHC Housing Market Outlook and Housing Market Assessment released Wednesday, housing starts have slowed as stunted income growth, job losses and slowing population growth put a chill on the local market.

At the same time, a growing inventory of both new and existing homes is prompting builders to put new projects on the back burner, the report concluded.

These factors, analysts say, will continue to cut demand and keep sales sluggish throughout 2017 and 2018.

"A weaker labour market, slower migration and reduced consumer confidence are tempering demand for new homes in Edmonton," reads the CMHC's 4th quarter housing market assessment.

"Builders have been faced with elevated inventory and competition from a well-supplied resale market."

As of August, there were 2,436 single-detached homes under construction, down 40 per cent from the same month of 2015. It's the lowest number of homes under construction recorded by CMHC in this sector since 2009.

However, the situation will level out, eventually. 

Analysts predict that by 2018, economic conditions will improve enough to buoy housing starts and get the resale market back to where it was before the downturn, analysts asserted.

Winners and losers

But until that happens, buyers will benefit and sellers will struggle.

"Sales moved higher in the second quarter, however, slower economic conditions in Edmonton continued to keep sales below historical norms," reads the report.

"This has led to longer selling times and kept market balance in favour of the buyer."

Realtor Abe Hering has been selling homes in Edmonton since 1978.

He says a price correction is already well under way, leaving him with buyers looking to get into the market.

"The fact that there's buyers out there, the fact that they're putting pen to paper and the fact that they're going out and spending that kind of money means that they have confidence in the market," Hering said. 

The average resale price was $367,324 in the second quarter of 2016, up 2.1 per cent from the first quarter.

The median MLS price of single-detached homes and apartments all declined on a year-over-year basis in the second quarter of 2016.

The market for single-detached homes was the hardest hit, with a 2.2 per cent decline over the same time period.

Cold, but running hot

CMHC reports says there is "moderate evidence" that an increasing number of Edmonton properties are becoming over-evaluated.

The CMHC uses a green, yellow and red system to gauge markets along different metrics, including overbuilding, overvaluation and price acceleration

Green represents weak evidence, yellow is moderate, and red is strong evidence of that category.

The MLS price in Edmonton increased 2.1 per cent  from the first to second quarter of 2016, while the economy shed 9,700 positions, and the employment rate increased to seven per cent.  

Christina Butchart, the principal market analyst for CMHC, said there's evidence of overvaluation in the market. Edmonton was given a yellow flag, while the country as a whole was given a red flag rating.

"So when we look at where the Edmonton market is going to right now, particularly on the resale side, we are leaving the door open over the next few months for prices to post a modest decline just because of some of the things we're seeing in the market, " said Butchart.  

Supply and demand

Sellers may not be the only ones to struggle as the local real estate market stagnates. Landlords may also feel the pinch, suggests the CMHC report.

The apartment vacancy rate in Edmonton increased 4.2 per cent in October 2015, up 1.7 per cent from the year before, and the trend is only expected to continue.

While job losses cut down on population growth, the Edmonton rental market continues to grow. 

There were 3,193 rental units completed from June 2015 to June 2016. And as supply outstrips demand, Edmontonians can expect to see rising vacancy rates.