Are you looking for a stock?
Try one of these
Homeowners in Canada’s energy patch are keeping a close eye on collapsing crude prices as the commodities’ downfall threatens the value of homes, and their concerns aren’t entirely unfounded.
Shocking images of Michigan suburbs still reeling from faltering Detroit automakers underscore the precarious nature of communities built on a single industry vulnerable to international supply and demand.
Oil prices have plunged by 50 percent from their peak last June. Producers are slashing capital expenditure budgets, which could stem the tide of the skilled labourers that have driven real estate demand and prices higher in energy rich regions for the last decade.
But Peter Norman, chief economist at Altus Group says Alberta won’t see the housing crash some are predicting in 2015 as new winners and losers emerge in markets across the country. He says the new status quo for Canadian energy producers will ultimately rebalance scorching hot energy-fed real estate markets as waning migration reins in demand, allowing the supply of houses a chance to catch up.
“In Alberta, the way it’s affecting the housing market principally, or at least in my mind, is going to be through the migration picture. We have seen very strong migration flows from outside Canada, but primarily from inside Canada into Alberta over the last two or three years . . . In Alberta, Saskatchewan, and other energy areas, [housing] markets have been undersupplied in recent quarters and the last couple years,” said Norman in an interview with BNN.
He’s confident developers have a firm grasp on how many new homes to put on the market as fewer Canadians consider relocating near the energy patch. He expects “some softness” down the road as investment in the oil sector falls off, but not an all-out crash in prices.
“One of the reasons why we haven’t had very strong housing cycles over the last several years in Canada, either on the upside or the downside, has been the industry’s ability to gauge supply pretty well. We are starting to see builders pulling back in terms of their expectations of what they are going to be building. That’s going to be a good news story in terms of keeping balance in Alberta’s housing market,” said Norman.
ONTARIO, QUEBEC, AND THE MARITIMES FOR THE WIN
Alberta and Saskatchewan’s loss will be Eastern Canada’s gain. With more people from those provinces looking for work at home, Norman expects to see stronger economic growth in Ontario and Quebec driven by the additional labour supply. He says this will ultimately translate to more favourable housing markets.
“I think Atlantic Canada was quite soft in 2014. We’ll see Atlantic Canada strengthen. Migration is a two sided trade. The other side of it is that [some] markets that will retain labour and retain people. They will be buying houses, but they will also be available in the labour market in order to fuel job growth in other sectors. It’s going to be a good news story for the Ontario economy and the Quebec economy. . . . Look for higher single family starts in Ontario,” said Norman.
NO INTEREST RATE HIKE IN SIGHT
Norman says first-time buyers are moving into homes with much a much higher sticker value than ten years ago thanks to favourable interest rates. He says the affordability index isn’t overly low or overly high, suggesting the 700,000 Canadians who bought a home on the new and resale markets last year are well equipped to balance the expense and mortgage with their household income.
“We don’t have a raising interest rate forecast through 2015. We think it’s going to stay pretty low and steady. I think those who are buying a new house now and looking at a [mortgage] renewal in five years’ time likely are not going to be looking at something higher,” he said.