As always with my content for you, I put things into the simplest terms, to help you also make sense of what’s happening in our Provincial economy.
Please do not feel insulted for my simplicity …this is also for my own comprehension and understanding :-).
You can read the full article of this content here.
Challenges Ahead Despite A Rebound In Oil:
Do you remember the Fort McMurray wild fires? As the ash settles post disaster, the disruption to oil production is about 30M barrels. In addition to that, the economic devastation in the surrounding communities will certainly result in a reduced provincial GDP for 2016.
The good news is, oil sands production is slowly regaining strength for a very hopeful moderate GDP growth in 2017.
Seemingly, the full effects of the oil down turn, happening for about two years now, has yet to fully trickle into the housing sector. About 200K full time jobs have been lost, equalling a peak-to-trough decline similar to the 2008-2009 economic down turn. Length of unemployment and a two decade high unemployment rate indicate Albertan’s are finding it difficult to replace their lost job.
Calgary has faced the brunt of Alberta’s job loss (relative to Edmonton) with our unemployment rate above the 8% mark for the first half of 2016. This has resulted in declines in new housing sales and resale home transactions since late 2014.
The saving grace for our housing industry, preventing significant price drops, has been a steep reductions in homebuilding activity and relatively low resale home inventory levels. As you might know, I am tracking Calgary re-sale inventory monthly (See July 2016 numbers here)
Hidden Leading Indicators Of Price Movement:
Looking forward, two leading indicators are worthy to note, helping us predict any future price home price movements:
- Residential Mortgage Arrears. AB Mortgage arrears are UP 33% year over year. For context, we’re at about half of that rate in 2010. This is a supply issue.
- Net Migration Of Workers. More and more Albertan’s are slotted to move to B.C and Ontario seeking gainful employment. This is a demand issue.
As mentioned, the shut down of oil production during the wild fires does effect AB’s budget. However, offsetting that is a higher than budgeted price per barrel of oil.
The great hope, and something to closely monitor, is the draw down of non-OPEC oil production and additional increase in Global oil demand.
Breath easy as it’s being predicted the oil pendulum is swinging in the “right direction” for Alberta. There is hope, despite current uncertainty, that fiscal deficits will be lower than predicted several months ago.
Again, read this full article here if you would like.
Graphs For Interpretation:
You can note in the above graph the steep decrease in housing starts (blue line). This REALLY helps keep our inventory (housing supply) low (green line), helping protect Calgary home prices. For context, look at the same graph lines in 2008-2010.
Notice the relationship in Calgary Mortgage arrears and unemployment rate in 2008-2010. Do you see how Mortgage arrears peaked AFTER unemployment began to fall? Also note the height of our current unemployment rate, relative to 2008-2010. Mortgage arrears are a large contributor to increasing housing supply that put down pressure on housing prices.
Notice the Blue line and Yellow line …At this point in our recessionary period in 2008-2010 Alberta’s unemployment rate began dropping. The trajectory of our Blue line (unemployment) is still rising.
The US recession of 2007-2011 and AB’s PAST (1980’s) economic recession are layered in for context. Things have been worse at different points in history and different countries.
Mortgage Sharing:
I really hope you’ve enjoyed this summary analysis. Let me know you appreciate this content by clicking the “Like” button at the top of this post. Also, email this blog post link to those who you think might appreciate it.
And finally, I would be honoured to have the opportunity to speak with you about your next Mortgage (refinance, purchase or renewal). Call, email or text me directly.
Thank you in advance!
Cheers,
Chad Moore
