The post-recession surge in residential construction will crest in Red Deer this year and then recede in 2016, predicts Canada Mortgage and Housing Corp.
In its fourth-quarter Housing Market Outlook, which was released on Thursday, the national housing agency said home construction in Red Deer will hit 840 units this year — up 7.1 per cent from the 784 units in 2013. That figure will hold steady in 2015 and then slip 1.2 per cent to 830 homes in 2016, it said.
A similar trend is anticipated across the province and throughout the Prairies. CMHC is projecting that there will be a 12 per cent increase in housing starts in Alberta this year, to 40,400 units; followed by a 7.4 per cent drop in 2015, to 37,400; and a further 4.3 per cent decline in 2016, to 35,800.
Lai Sing Louie, a regional economist with CMHC, said in a release that the anticipated construction slowdown reflects expectations of more subdued job growth in the Prairies.
“Migration flows to the Prairie region will also decline and remain below the record level achieved last year,” he explained.
“Meanwhile, new listings in the resale market are expected to continue rising, creating more competition for new home sales. These factors will contribute to a moderation in housing starts in 2015 and 2016.”
The CMHC outlook actually shows a decline in single-detached home construction this year, to 375 houses from 389 in 2013. However, this will be more than offset by an anticipated increase in the multi-family category, to 465 units from 395.
Single-detached housing starts are expected to slip to 365 in 2015 and to 360 in 2016, while the tally for multi-family projects is projected to increase to 475 in 2015 and then slide to 470 the following year.
Ekaterina Kortava, a regional market analyst with CMHC, told the Advocate that multi-family construction in Red Deer is being driven by low vacancy rates in the rental market.
“Almost half of the multi starts this year were in the rental market,” she said, adding that the in-migration of new residents has boosted demand for rental accommodation.
Also pushing multi-family construction are local land constraints and the price appeal of multi-family homes for new buyers, said Kortava.
“Multi-starts have always been below single starts (in Red Deer) until 2013, when multi-family starts outpaced for the first time single starts.”
As the new rental buildings enter the market, vacancy rates should rise and multi-family construction slow, she said.
In the case of the resale market, CMHC expects continued growth — albeit at a slower pace in 2015 and 2016. It’s projecting 5,400 Multiple Listing Service sales in Central Alberta this year, which would mark a 10.4 per cent improvement over the 4,893 sales last year. The year-over-year sales increase is forecast to drop to two per cent in 2015, to 5,510; and then hit 3.5 per cent in 2016, with 5,590 sales.
CMHC said the large migration inflows and employment gains in Alberta in recent years will help lift resale transactions. Many people will move from rental accommodations to their own homes, it said, with rising incomes supporting move-up buying as well.
However, moderating migration inflows and higher monthly carrying costs are expected to slow resale gains moving forward. Kortava noted that Red Deer’s resale market is also drawing prospective buyers away from the new-home market.
“During our industry consultations, we found that the growing price gap between new homes and resale homes is driving more families into the resale home market.”
The average MLS resale price for the Red Deer region this year will be $312,200, said CMHC. That would be a 4.7 per cent improvement over the 2013 figure of $298,245. A further 2.5 per cent increase is expected in 2015, to $320,000, followed by another 4.4 per cent in 2016, pushing the average to $326,000.
For Alberta as a whole, CMHC expects resales in 2014 to be nearly eight per cent above 2013 levels, reaching 71,200 units. It anticipates that a further 2.4 per cent increase will push this number to 72,900 in 2015, followed by another 2.3 per cent rise in 2016, to 74,600. Nationally, the CMHC Housing Outlook expects home construction to remain steady in 2015 as it follows the country’s economic and demographic trends. Looking beyond next year, however, the CMHC is predicting “some moderation” for 2016.
“Economic conditions in Canada are forecast to gradually improve in the short-term and lead to modest increases in employment and average earnings, which should support housing demand,” the agency said
“However, the positive effect of improving economic conditions on new construction activity will be offset by a number of factors.”
Some of those expected causes include: a slowdown in the pace of construction, the shrinking role of young, first-time buyers due to slower population growth, rising housing prices in some markets and the anticipated interest-rate increase in late 2015.
Looking at the resale market, the CMHC expects brightening economic conditions to deliver a moderate boost in MLS sales in 2014. It projects the momentum to continue in 2015, followed by a cooling of the resale market in 2016 due to the expected decrease in first-time buyers.
With files from The Canadian Press.