Big towns dictate market rate

Red Deer and Vancouver have vastly different climates, topographies — and real estate markets.

Red Deer and Vancouver have vastly different climates, topographies — and real estate markets.

This third difference has been illustrated by the recent slide in residential sales activity in the West Coast city, a trend not duplicated in Red Deer.

Yet big urban centres like Vancouver are often lumped together with other cities to produce national statistics, said Ken Devoe, president of the Central Alberta Realtor’s Association.

“In real estate, Vancouver and Toronto kind of dictate the Canadian market rate.”

A case in point arose Monday, when the Canadian Real Estate Association announced that it was revising downward its forecast of the number of home that would be sold in Canada this year.

The new tally of 456,300 equates to a 0.5 per cent decline from 2011, and came just three months after CREA projected 2012 residential sales of 466,900, a 1.9 per cent increase from the previous year.

“Greater Toronto, Greater Montreal and Greater Vancouver contributed most to the small decline at the national level,” the association acknowledged.

But the national forecast stands in stark contrast to the actual numbers in Red Deer and the surrounding area, said Devoe, who is a Realtor with Century 21 Advantage in Red Deer.

As of Nov. 30, the area covered by the Central Alberta Realtor’s Association had processed 3,998 sales through the Multiple Listing Service — up nearly 13 per cent from the 3,545 sales to the same point last year. “That’s the problem when we get a report from a Canadian organization,” said Devoe.

CREA blamed the national decline in large part on tighter mortgage lending rules that took effect in July.

Designed to discourage Canadians from incurring too much debt, they included a reduction in the maximum loan amortization period to 25 years, which increased the monthly carrying costs relative to mortgages with longer amortization periods.

Devoe doesn’t think the new rules affected Central Albertan buyers as much as their counterparts in other areas.

“In Central Alberta, we’re kind of shielded,” he said. “People are not spending to their max.”

Federal Finance Minister Jim Flaherty also downplayed the impact of the new mortgage rules.

“The Office of the Superintendent of Financial Institutions has tightened guidelines as well and I think there’s an increasing awareness among the Canadian public that excessive debt is unwise in a time of historically low interest rates,” Flaherty said Monday.

“That interest rates only have one way to go and that is up, and eventually they will go up, so people ought to be prudent in the amount of debt they take on at low interest rates.”

Looking ahead to 2013, CREA is now forecasting a further two per cent drop to 447,400 residential sales in Canada.

Devoe is confident the Central Alberta market will perform at a much higher level, although not to the same extent as in 2012.

“If we hit 12 per cent again next year, I’d be shocked. My forecast is probably six to seven per cent.”

Again, he pointed to the strength of the local market in explaining why the Red Deer area should outperform Canada’s biggest cities.

“Throughout the last couple of years we’ve been pretty lucky, being in Central Alberta,” said Devoe. “If you look at the graphs, you see the Vancouver market drop off, you see the Toronto market drop off. We didn’t see that in Red Deer as much.

“Red Deer is a strong economic area.”

As for prices, CREA expects the average Canadian price for 2012 to be $363,900, up 0.3 per cent from 2011. For 2013, it’s calling for a further 0.3 per cent increase, to $365,100.

Devoe pointed out that the Red Deer average so far this year is $307,592, which is almost seven per cent ahead of the $287,566 average to the same point in 2011.

Economists differ on what the national numbers mean.

BMO deputy chief economist Doug Porter said in a note to clients that most major markets appear to be undergoing a “policy-induced correction,” but with the exception of a few cities like Vancouver, should be in for a soft landing.

David Madani of Capital Economics disagreed.

“The continued decline in existing home sales support our view that a potentially severe housing correction is underway,” Madani said. “Assuming that sales continue to trend lower heading into next year, then sharper demand and supply imbalances will eventually lead to widespread home price declines. We still think that house prices will decline by 25 per cent over the next year or two.”

hrichards@bprda.wpengine.com

With files from The Canadian Press.

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