Migration the key factor in housing markets

The movement of people between and within provinces is a key determinant of the strength of housing markets in communities across Canada. By this measure, Red Deer stacks up pretty well against its counterparts, says Ekaterina Kortava, a regional market analyst with Canada Mortgage and Housing Corp.

The movement of people between and within provinces is a key determinant of the strength of housing markets in communities across Canada. By this measure, Red Deer stacks up pretty well against its counterparts, says Ekaterina Kortava, a regional market analyst with Canada Mortgage and Housing Corp.

Speaking to the Advocate prior to presenting at CMHC’s Housing Outlook Conference in Calgary today, Kortava described how there was a net migration of about 5,000 people into the Red Deer area in 2013. That figure included nearly 3,000 newcomers from other provinces and almost 1,000 from elsewhere in Alberta.

Of particular interest, said Kortava, is the fact net migration into this region has been growing faster than the provincial average.

“This suggests that the attractiveness of the Red Deer region versus other centres is increasing over time.”

Job prospects is the big draw for people on the move. So the outlook for continued strong employment in and around Red Deer suggests this area will continue to attract migrants, said Kortava, adding that many of the new jobs are full-time positions.

“This is good news for home ownership, because full-time employees are more likely to own a property than part-time employees.”

The impact of this in-migration of people to the Red Deer area was reflected in CMHC’s fourth quarter Housing Market Outlook, which the national housing agency released on Oct. 30. It projected that there would be 840 housing starts in the city this year, up 7.1 per cent from the 784 units in 2013.

In the case of Central Alberta’s resale market, CMHC was forecasting 5,400 Multiple Listing Service sales this year, which would mark a 10.4 per cent increase over the 4,893 sales last year.

“MLS sales have been growing consistently for several years, and of course this demand has been driven by net migration, falling unemployment rates and historically low mortgage rates, prompting more renters to move into home ownership,” said Kortava.

The local resale market has also received a boost from its current comparative advantage over the new home market, she added.

“The price gap between new homes and resale homes has been growing over time.

“This reflects cost of construction, labour constraints, land constraints.”

Kortava also noted that new construction in Red Deer has been skewed in favour of multi-family projects. This is the result of the greater affordability of multi-family homes, as well as the current demand for rental accommodation.

“If we look to 2014, almost half of the multi-family starts were in the rental market.”

CMHC’s outlook anticipates that new home construction in Red Deer will hold steady in 2015 and then decline slightly the year after that. It also expects growth in local MLS sales to slow over the next two years.

Net migration will again be the factor at play, said Kortava, with anticipated economic growth outside of Alberta likely to slow the inward flow of people.

The resale market should retain its relative advantage over the new home market, she said, with a lingering price gap expected to pull buyers in that direction.

Kortava pointed out that Central Alberta’s sales-to-listing ratio for resale homes has been increasing over time.

“If sales increase relative to listings, it means that demand increases relative to the supply,” she said.

And that exerts upward pressure on prices.

“This explains why we have observed strong growth in prices recently. Prices have been on an upward trend since 2005.”

However, those price gains are persuading more homeowners to put their property on the market, which should increase supply and curb price growth in the future, she said.

With the year-over-year inventory of single-detached homes in Red Deer up 38 per cent, as of October, builders are slowing production, said Kortava. And as the new multi-family complexes hit the market and push vacancy rates up, starts in that category should also slow, she said.

“Several hundred additional rental units I expect to be competed by the end of 2015.”

However, because those new rental units will offer improved amenities and the cost of maintaining them will continue to rise, Kortava doesn’t expect rents to decline.

“The average two-bedroom property rent is expected to reach $1,025 in 2016.”

CMHC’s Housing Outlook Conference in Calgary was expected to attract about 400 people, including municipal officials, builders, lenders, Realtors, and others involved in the housing market.

A similar conference is scheduled for Edmonton next Tuesday.

hrichards@bprda.wpengine.com

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