High prices may depress house demand

High prices may depress house demand
But more workers arriving in Alberta will keep cost of homes climbing, says CMHC

David Finlayson
The Edmonton Journal; with files from Canadian Press
Tuesday, February 06, 2007
EDMONTON - The vibrant job market will continue to attract workers to Edmonton, but the "dark cloud" of escalating prices will temper housing demand over the next two years, Canada Mortgage and Housing Corp. said Monday.
New home starts are expected to decline from 14,970 last year to 13,500 by 2008, and resales will finally pull back this year after six successive records, the agency said.
They will drop from 74,000 last year to 69,500 by 2008, while the average price will rise 13 per cent this year and seven per cent next year after an astronomical 29-per-cent jump in 2006.
"Though the majority of economic indicators point to persistent strength in Alberta's housing markets, strong price gains in the new and resale sectors remain a dark cloud on the horizon," CMHC said.
The outlook is for robust economic growth through 2008, but high housing costs and other provinces' efforts to retain workers will push the record net in-migration of 86,000 last year down to 60,000 by 2008, the report added.
Low vacancy rates and strong demand by people priced out of the single-family home market will keep Edmonton rents rising this year, with the average rent for all units hitting $841 a month by October.
Most multi-family housing starts last year were condominium units, further pressuring the apartment market, CMHC said.
According to Edmonton Real Estate Board figures released Monday, the average single-family home price in Edmonton was $357,325 in January, up 4.5 per cent from December and 51.9 per cent higher than January last year.
Condominium prices rose a more moderate 2.5 per cent to $233,175, but were still 74.3 per cent higher than 2006, while duplex and rowhouse prices actually went down $1,030 last month. "Sales are typically sluggish at the beginning of the year, but realtors have been kept busy in January with increased sales and higher average prices," EREB president Carolyn Pratt said.
January residential sales jumped 45 per cent from December and were up 32 per cent over January 2006. There were 1,554 residential sales last month with 2,043 listings.
The total value of MLS residential sales was $472 million, double the same month last year, with homes spending an average 33 days on the market compared with 30 days in December. Strong commercial and rural sales drove total board sales up 107 per cent over the same month last year.
Economists are divided on whether the house price bubble is ready to burst."Some people do think that those price gains are going to be unwound fairly quickly in the spring time," said Gregor Bush, an economist with the Bank of Montreal.
Others say the global glut in savings and liquidity will keep long-term interest rates low and act as a cushion for the housing market.
"We're seeing a slow deceleration in housing activity, but still with activity at fairly high levels, and we expect that to continue through 2007 as starts come off their very robust pace of 2005 and 2006," Bush said.
"That's still very high by historical standards."
dfinlayson@thejournal.canwest.com
© The Edmonton Journal 2007