Canada's Housing Bubble

Jul 26, 2010 Marty Hope Calgary Herald

Homebuilders are cautiously optimistic about what the second half of this year will bring.

Then again, some are already looking further down the long and winding road to the 2011 market.

Like drivers dealing with Calgary's road construction, the city's housing sectors have been frustrated with detours, potholes and speed bumps in the past couple of years -- the result of an economic red light that forced some drivers to the side of the road.

The light finally changed to green and new home activity started moving at a better clip -- until a traffic jam of problems started to slow things down again.

Consumers, spoiled by mortgage rates not seen in 50 years, began to balk at buying when reports of increases hit the windshield after deciding they would buy and try to beat whatever increases were headed in their direction.

The MLS resale market, which had been moving along well, finally got caught with a parking lot full of seller listings about the same time that consumers decided to put their buying intentions into idle -- and that condition still exists.

Typically, Calgary can steer around the inventory issue by relying on strong migration levels of job seekers, but not this time.

Migration levels have improved slightly in the past year, but caution lights are still blinking when it comes to unemployment and job creation -- issues that are going in opposite directions.

For example, a cloud is still hanging over the energy industry, particularly the natural gas sector where prices remain weak.

"There is no single smoking gun in terms of what is impacting the housing market," says Richard Corriveau, regional manager of market analysis for Canada Mortgage and Housing Corp. "It's all of these things rolled into one."

The issue is pretty basic: migration equals people -- and people need jobs to buy a home.

"We don't have the magnetic draw we used to," says Corriveau.

From 2005 to 2008, unemployment was below four per cent. But in 2009, Alberta had the largest increase in unemployment in the country at 6.6 per cent.

"We need job creation," says Corriveau, adding that so far in 2010, job growth is the weakest in Canada at 0.6 per cent -- less than half the national average of 1.4 per cent.

"A lot of it has to do with the natural gas industry that is slowly coming around. There is cautious optimism about the future, but jobs will be filled locally and not through migration."

The forecast for this year is for 40,000 newcomers to pull into Alberta from other parts, a slight increase from 2009, but well off the total of 66,000 in 2008.

"Because of the decline in migration, housing requirements aren't as strong as in previous years," says Corriveau.

And that's not to ignore the impact the resale housing sector is having on the new home side.

Consumers have a thicker catalogue of MLS listings to peruse and plenty of time to shop the market in person before making any decisions about what to buy.

Listings are growing, sales are declining and prices are hanging tough -- and those listings are in direct competition to spec homes being put up by builders.

Such homes are built in advance for people who don't want to order a dwelling and then wait for it to be constructed.

"The MLS market is competition for the homebuilders that wasn't as strong in earlier years," says Corriveau.

As for homebuilders, there's a mixed bag of reaction to what is happening in the marketplace, but most are expecting the market to flatten out moving into July to September.

For the first six months of this year, CMHC says construction starts of detached single-family housing sat at 3,335, up from 1,549 for the same period in 2009.

When multi-family housing construction is thrown into the equation, the first half of this year saw slightly more than 4,600 starts, up from less than 2,000 a year ago.

"Consumers looking for a home have more choice in the market," says Richard Cho, senior analyst for CMHC in Calgary.

"Active listings in Calgary have been rising since the beginning of 2010. In June, active listings were up 49 per cent from the previous year.

"New homes will also experience more competition from the resale market."

This e-mail address is being protected from spambots. You need JavaScript enabled to view it