Western Canada Housing Bubble an Exaggeration
The other day we published an article from the Ottawa Business Journal which implied that there is a housing bubble in Edmonton and especially Calgary and Vancouver, based on a report from TD Canada. Well we found a new article with some more information on that report that refutes the idea that Edmonton's bubble is about to burst. Funny how the media loves to blow things out of proportion. Of course, we didn't agree with the bubble theory and now I feel a certain sense of vindication. The best little bit of info from the article, to put everything into perspective is this:
"Payments on an average Edmonton home, with a 75-per-cent mortgage over a 25-year term, still consume only 18 per cent of a median family income -- compared to 24 per cent in Calgary and 50 per cent in Vancouver." This is a great article, worth a read with opinions expressed from a number of industry experts. Here is the complete article:
Bank report sees Edmonton as affordable despite demand
Ron Chalmers, The Edmonton Journal
Published: Friday, September 01, 2006
EDMONTON - Edmonton home prices will keep rising, but gradually, and are unlikely to fall says a major TD Economics report.
"There are concrete signs that the U. S. housing market is falling back to earth," Craig Alexander, TD's deputy chief economist wrote in the report, released Thursday. "This has led to concerns that Canada might have a similar experience."
But Canadian prices "have generally lacked the degree of speculation" seen in the U. S., he wrote.
Calgary and Vancouver do present "the possibility of a pullback in prices at some point in the future," Alexander cautioned. Edmonton is also experiencing explosive price growth, he wrote, "but affordability remains high."
Alexander said he expects Alberta's high immigration and low unemployment to sustain the demand for housing. More new homes and resale listings will dampen future price shocks but will not cause prices to fall, he predicted.
Alexander traced the recent spike in Edmonton resale home prices -- up 31 per cent this July from last July -- to inventory shortages.
"The best thing that could happen is the market moving into better balance, and this is starting to happen," he said, citing "a frenzy of housing starts."
Alexander expects prices now to rise slowly toward "a soft landing" of the boom -- with no bust.
Although Edmonton prices have risen faster than rents and incomes, they still score well on the "affordability index," he noted.
Payments on an average Edmonton home, with a 75-per-cent mortgage over a 25-year term, still consume only 18 per cent of a median family income -- compared to 24 per cent in Calgary and 50 per cent in Vancouver.
Alexander suggested that anyone considering a home purchase should balance the low risk of prices falling against the opposite risk that prices will continue to rise -- while a potential buyer remains out of the market.
"It's a question of affordability, and Edmonton is still extremely affordable for people of average incomes," he said -- although rising prices have shut out lower-income earners.
Vinay Bhardwaj, a market analyst with Canada Mortgage and Housing Corporation, agreed that "prices will continue to go up, but not at the pace we have seen over the past few months."
The Alberta economy will sustain strong demand, he said, while rising supply will restrain price increases.
Madeline Sarafinchan, president of the Edmonton Real Estate Board, said increases already are moderating. While average Edmonton prices rose 31 per cent in the past 12 months, they rose only 1.5 per cent in the past one month, she said.
"It is a little slower, and I think that will continue."
Bhardwaj and Sarafinchan both noted that higher costs are shifting the market mix, with more first-time buyers looking at condominiums rather than single-detached houses.
Affordability has been further enhanced by financial institutions now offering 30 and 35-year mortgages.
Such long-term commitments are prudent, given Alberta's long-term economic outlook, said ATB spokesman Brian Countryman.
"We see nothing on the horizon to suggest that our economy is in jeopardy," he said.
Edmonton house prices are unlikely to fall because planned energy developments will attract workers, and "people coming to Alberta will need homes," Countryman said.