Canada’s national housing agency has become significantly more pessimistic about the outlook for residential real estate in Red Deer, and beyond.
A forecast issued by Canada Mortgage and Housing Corp. on Tuesday projects that housing starts in Red Deer will fall to 425 this year. That’s down nearly 26 per cent from the 572 starts recorded in 2008.
In 2007, the tally was a record 1,558.
The CMHC forecast also anticipates that the local resale market will continue to slide. It expects 3,550 home sales to be processed through the Multiple Listing Service in Central Alberta this year, which would be down almost 16 per cent from 2008, when 4,214 MLS sales occurred in the region.
The average resale price in 2009 will be $264,000, according to the forecast, which is five per cent lower than the $278,040 average in 2008.
In 2007, there were 5,075 MLS sales in Central Alberta with an average selling price of $270,494.
CMHC is anticipating improved numbers in 2010, with 515 housing starts in Red Deer and 3,770 home resales across Central Alberta. But all of the numbers are lower than those in an earlier forecast published by CMHC in February.
At that time, the agency was predicting 550 housing starts in Red Deer for 2009, and 3,750 home resales in Central Alberta at an average price of $271,000.
For 2010, CMHC was anticipating 675 housing starts in the city and 4,000 transactions on the Central Alberta resale market, with these selling for an average price of $280,000.
Regine Durand, a market analyst with CMHC, said the lower housing start estimates for Red Deer reflects the high inventory of unsold homes. She added that an “increasing gap” between the price of new homes and the price of existing homes is pushing many buyers onto the resale market.
In 2007, she said, the difference was about $25,000.
“Today, the gap between the resale price and the new price is like $105,000.”
As for CMHC’s downgraded outlook for Central Alberta’s resale market, Durand said this reflects the fact many people are reluctant to buy after the rapid run-up in prices in 2006 and 2007.
“There is still that buyer’s resistance, that aversion to price growth.”
Durand added that high sales volumes in Central Alberta from 2006 to 2008 absorbed much of the demand for homes, and the in-migration of people to the region has slowed.
CMHC expectations for the rest of province are even gloomier.
Housing starts in Alberta are forecast to hit 13,700 this year, down 53 per cent from the 29,164 starts in 2008. Next year, the number is projected to rebound somewhat to 16,200.
On the resale market, MLS sales in the province should reach 44,000 this year, with an average selling price of $322,500, said CMHC. Those deals would represent a 22 per cent decline in numbers from 2008, when 56,399 sales occurred at an average price of $352,857.
Resales in 2010 will recover to 48,000 in Alberta, says the CMHC forecast, with an average price of $329,000.
Nationally, housing starts are expected to hit 141,900 this year, down 33 per cent from 2008, when work was started on 211,056 homes.
The CMHC forecast said Alberta home builders will continue to cut production in response to a rise in the number of unsold units on the market and weak demand. In the case of multi-family construction, many projects have been cancelled, it noted.
The situation should improve next year, as the inventory of unsold units declines.
With respect to the resale market, CMHC noted that MLS transactions have been declining in Alberta since mid-2007. The slide was initially the result of rising prices, but more recently it can be attributed to economic uncertainty, a weakening job market and reduced migration into the province, said CMHC.
Concerns of homeowners that they will have trouble selling their existing property if they buy another has also created a drag, said the agency.
Improved economic conditions, and lower prices and mortgage rates should help boost the resale market later this year and into 2010.