Avi Urban Focusing on the Positive – Oil Prices vs Housing Market

In January of this year, we wrote a blog post about falling oil prices and how they were expected to affect Alberta’s housing market as we moved through 2015.  Given what we’d read/heard/seen, we maintained a positive outlook, and we weren’t alone.  At the time, ATB Financial chief economist, Todd Hirsch, believed the dip to be short-term.  “I do think it’s all quite temporary,” said Hirsch, “and probably a year from now we’ll look back and we’ll say, ‘It seemed all kind of much ado about nothing.’”[1]  While it hasn’t quite been a year, we thought we’d revisit the position we held in January and see how it’s holding up.

WHEN IS THE PRICE OF OIL EXPECTED TO REBOUND?

Will Alberta’s energy sector begin to experience a turnaround in early- to mid-2016 as we hoped?  It’s not totally out of the question.  According to a recent article by the CBC, it’s all tied to global demand and U.S. production rates.  Martin King, a commodities analyst at FirstEnergy Capital, is anticipating a drop in U.S. output.  “In the next few months,” says King, “I think there will be more data that says that decline is not only continuing but it’s actually starting to accelerate.”  As for global demand, King believes the world’s oil market is oversupplied by 1.5 million barrels, not 3 million, as some numbers indicate.  “If that’s the case, then a combination of healthy global demand and falling U.S. supply could see crude markets come back into balance by the middle of next year, returning prices into the $60 US-a-barrel range from the $40s.”[2]  Is this a full recovery?  No, but it’s definitely a move in the right direction.

WHAT ABOUT THE HOUSING MARKET?

In January, the Canadian Real Estate Board’s 2015 Economic Outlook and Regional Housing forecast predicted an increased supply in the housing market, and many, including Royal LePage CEO, Phil Soper, believed this to be a welcome scenario.  “Slowed growth in the price of homes will be a welcome sign for many people in the West,” says Soper, “especially in pricey markets … where first-time buyers have been frustrated by a hyper-competitive market and home prices that have escalated at a feverish pace.”

With year-end in sight, how are things shaping up?  According to an economic analysis by the Canadian Home Builders’ Association-Alberta, “For the year-to-date, total starts in Alberta’s urban centres were largely unchanged (-0.2%) from the first 7 months of 2014 at 21,226 units.”[3]  This is definitely a positive for Alberta’s builders, but what about the province’s resale residential housing market?  RBC Senior Economist, Robert Hogue, “is forecasting sales in the province to dip by 17.8 per cent this year from 2014.  But Alberta is then expected to see the biggest year-over-year hike in sales in 2016 of 7.1 per cent.”[4]  In the interim, buyers, particularly in Calgary, are enjoying improved affordability.  “Owning a home in Calgary at market price remains more affordable than it has been on average since the middle of the 1980s,” says Hogue.[5]

WHAT DOES THIS ALL MEAN?

There’s no denying that the global economy and its effects on regional housing markets is a complex issue.  And while negativity abounds, you can still find evidence of the positive.  So, just as we did at the beginning of the year, we’re going to continue to focus our efforts on the positive.

 

[1] ATB forecast predicts oil prices will cut Alberta’s growth in half for 2015, Mario Toneguzzi, Calgary Herald, January 7, 2015

[2] Buy Canada! The bullish case for the Canadian Economy, Paul Haavardsrud, CBC News, September 4, 2015

[3] Economic Analysis, Richard Goatcher, Canadian Home Builders’ Association-Alberta

[4] Alberta housing market forecast to rebound in 2016, Mario Toneguzzi, Calgary Herald, August 20, 2015

[5] Downward pressure bringing added choice, affordability to Calgary Market, Cody Stuart, CREB now