The total number of new housing starts in the Edmonton Census Metropolitan Area (CMA) is expected to moderate in 2014, 2015 and 2016 after two years of double-digit increases. In 2012, the Edmonton CMA saw 12,837 new housing starts, a 37.6% year-over-year increase from 9,332 starts in 2011. In 2013, the CMA experienced another increase of 14,689, up 14.4% from 2012. There are 13,300 new starts forecast for 2014, a decrease of 9.5% from 2013. This trend will continue into 2015 with 13,000 new starts projected, a 2.3% decrease from the present year. And in 2016, the number of starts will decrease to 12,300, a 5.4% reduction from 2015.
Factors Affecting Housing Growth
The Edmonton CMA experienced consistent year-over-year growth in net migration from 2010 (11,000 new residents) to 2013 (38,000 new residents). Forecasts for 2014, 2015 and 2016 indicate a decrease in year-over-year increases. However, the projections remain high with 30,000 migrants anticipated for 2014, 24,000 in 2015 and 22,000 in 2016.
The net increase in population between 2010 and 2013 created a demand for housing that Edmonton’s resale market could not sustain. As a result, the demand for new homes increased with the number of new migrants. As population growth moderates in years to come, the number of new housing starts will decrease accordingly.
Edmonton’s employment growth rate will decline in 2015 and 2016. In 2011, the Edmonton CMA growth rate hit 6%, the highest since 2007. In the following years, employment grew at 3.2% and 3.5% in 2012 and 2013, respectively. Between 2014 and 2016, the Edmonton CMA employment rate is expected to average 2.5%. Moderating employment growth will moderate wage increases and act as a drag on new home purchasing.
Eastern Canada’s improving economy is a primary factor behind Alberta’s declining migration. Ontario’s provincial economic outlook indicates over the next three years, provincial employment is expected to grow an average of 1.5% per year and real GDP at 2.5%. Compared to Ontario’s average rate of growth from 2011 to 2013, that is a 15.4% increase in employment and a 56.2% increase in real GDP.
Interest rates are expected to remain steady until mid-2015. 2015 one-year rates are forecast at 3.20% - 4.00%, while five-year rates are 5.25% - 6.0%. The 2016 one-year rates are at 3.70% - 4.60% and five-year rates are 5.55% - 6.45%. The gradual increase in mortgage rates will not significantly impact Edmonton’s housing demand.
The real dark cloud on the horizon is the “price floor” destruction on oil prices that has always been managed by OPEC. With OPEC’s share of the world’s oil supply dropping from over 60% in the late 90’s to 32% today, its ability to sustain prices by cutting production has been greatly diminished. This could get ugly before it gets better. Russia, the United States and Canada are addicted to high oil prices to support their growing economies and unlikely to curb their production unless it becomes unprofitable. But with prices below $65/barrel, it’s unprofitable for everyone. Interesting to see who blinks first.
Forecasts for migration, employment and mortgage rates in the coming years suggest moderation in housing starts for 2015 and 2016. While these forecasts are lower than current levels, the Edmonton CMA is coming down from record levels, so that is great. The real issue will be energy prices and Alberta’s ability to keep producing those high paying, migration-worthy jobs for people around the world. Stay tuned, but you may expect to see a “significantly moderating” housing market in Edmonton in 2015.
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Source: Canadian Mortgage And Housing Corporation 2014.