CALGARY’S ECONOMIC EDGE · If the Euro zone can survive its fiscal problems and the U.S. can avoid the political drama in dealing with spending cuts, taxes and the ... France Germany

CALGARY’S ECONOMIC EDGECREB® | 2013 economic outlook & calgary regional housing market forecast

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CREB®

2

CREB®

300 Manning Road NECalgary, AlbertaT2E 8K4, Canada

Phone: 403.263.0530Fax: 403.218.3688Email: [email protected]

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The forecasts included in this document are based on information available as of December 2012.

2013 economic outlook & calgary regional housing market forecast

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Many of the global economic risks that weighed on the economy throughout 2012 remain, creating uncertainty and impeding economic growth into 2013.

In 2013, resource rich provinces will lead the country in growth, but at a slower pace.

Energy investment growth will likely ease due to concerns regarding market access and pipeline capacity constraints, contributing to slower employment growth in 2013.

Sales growth in the single family housing market will ease in 2013 due to slower growth in employment, weaker migration levels, and lower level of listings in the market. Meanwhile, condominium sales growth will outpace single family growth as consumers seek affordable housing options.

Housing prices will continue to recover in 2013, with single family levels expected to finally exceed levels recorded more than five years ago.

The risks in the market are numerous. The global economic situation and oil supply challenges pose the main downside risks, however, if listings continue to decline and demand levels increase more than anticipated, housing prices will increase at a greater rate than expected.

highlights

global economy 4

summary 4

europe 5

emerging-markets economies 6

united states 7

economic environment 9

canada 9

alberta 10

crude oil 12

natural gas 13

calgary economy 14

gdp 14

employment 15

net migration 17

contents

calgary housing 18

rental 18

new home 19

resale market summary 20

single family 22

condominium 24

surrounding towns 26

forecast risk 27

forecast summary 28

resource list 29

CREB®

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-5

-3

-1

1

3

5

7

9

11

13

15

2007 2008 2009 2010 2011 2012 (F) 2013 (F) 2014 (F)

European Union China Canada United States World

Forecast

global economy | summary

UNCERTAINTY AND RISK WEIGH ON GLOBAL MARKETS

Global economic growth estimates were weaker than expected in 2012. Financial challenges in the Euro area are driving recessionary activity there, according to the International Monetary Fund1. This, combined with lacklustre economic performance in the United States, dampened the economies in emerging markets. In fact, many of the risks that weighed on the global economy throughout 2012 remain, creating uncertainty and impeding economic

ECONOMIC GROWTH

Economic growth in advanced countries is being held back by austerity measures aimed at tackling government deficits, and by a fragile banking system operating under tight borrowing conditions. Stimulative monetary policy, on the other hand, is the main positive force. This includes the maintenance of low interest rates to encourage investment borrowing or help financial institutions. The ongoing uncertainty, however, is ultimately limiting the success of monetary policy. Further measures aimed at addressing the uncertainty are being taken to reduce investor concerns.1

growth into 2013. However, while the economy remains fragile, policymakers have options that could help support global finances. If the Euro zone can survive its fiscal problems and the U.S. can avoid the political drama in dealing with spending cuts, taxes and the debt ceiling, the global economy should grow, albeit slowly.

Real GDP Growth

Source: International Monetary Fund, World Economic Outlook Update, October 2012


5

0

5

10

15

20

25

30

France Germany Greece Ireland Italy Spain United Kingdom

United States

Canada

2011 2012 Estimate

-8

-6

-4

-2

0

2

4

France Germany Greece Ireland Italy Portugal Spain United Kingdom

2011 2012 (F) 2013 (F)

MUDDLING THROUGH FISCAL REFORMS

Investor risk has increased as a result of concerns over the ability of peripheral European Union countries to deliver on required fiscal and structural adjustments, combined with doubt over European leaders’ ability to implement policies that will combat a potential financial crises. This pushed up yields in countries such as Italy and Spain, jeopardizing their ability to repay loans. It also prompted a commitment from Euro area policymakers to do whatever is necessary to stabilize the region. The leaders activated a bond-purchase program (Outright Monetary Transactions), available to governments that fulfill the necessary conditions. While this provided some relief in the financial markets, slow economic activity in the peripheral economies is spreading to the Euro zone’s core countries.2

global economy | europe

GDP Growth Europe

The Euro area is contracting into recessionary territory in 2012. Many of its 27 member countries are facing high unemployment rates and a weakening in domestic demand. This year, economists estimate the European Community will see extremely modest growth, if any at all, as the area continues significant fiscal restructuring. Further reforms in EU structure are required before the area can achieve long-term stability and growth. While political leaders say they are committed to such a transition, uncertainty with the European Union outlook will persist for years to come.

Unemployment rate

Source: International Monetary Fund, World Economic Outlook Update, October 2012 Source: International Monetary Fund, World Economic Outlook Update, October 2012

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global economy | emerging-market economies

GROWTH SLOWS IN DEVELOPED NATIONS

Emerging market growth is slowing, in part as a result of policy actions aimed at easing inflationary pressures, along with weaker demand from advanced economies. GDP growth in emerging markets and developing economies has dropped from 7 per cent in 2010 to an estimated 5.3 per cent in 2012.1

China, which represents 15 per cent of global GDP 1, has seen growth decline from over 10 per cent in 2010 to an estimated 7.8 per cent in 2012. This is attributed to actions taken to prevent an overheated property market, weaker industrial production and reduced external demand, especially from Europe.2 The pace of growth in China is forecast to modestly increase in 2013, as the government increases spending on infrastructure projects and loosens monetary policy.

While weakness in the European markets is dragging down growth in many emerging and developed markets, economists anticipate growth will improve to 5.6 per cent this year.1 The growth is being driven by improvements in domestic demand, following policy easing measures, as well as by employment and consumption growth. The growth should be strong enough to support robust commodity prices, which have a significant impact on the Canadian economy.

European Union 19%

Canada 2%

United States 19%

China 15%

Rest of the World 45%

Share of real global GDP (%) 2012 (E)

Source: International Monetary Fund, World Economic Outlook Database, October 2011


7

SHOWING SIGNS OF LIFE

global economy | united states

The U.S. economy is growing at a gradual pace, with improvements in the labour market and signs of recovery in the housing market. Estimated growth in 2012 was restrained due to the European recession, severe weather systems, including midwest droughts and Hurricane Sandy, and political uncertainty impacting business investment growth.3

UPDATE ON THE FISCAL CLIFF

As expected, U.S. policy makers agreed to avoid the tax hikes and spending cuts known as the fiscal cliff. While higher earning Americans will face some tax hikes, the middle class will be left untouched. However, the story has not fully played out. The negotiations on the spending cuts and tax reterm have been delayed until February. This debate, along with the issue of the “debt ceiling” will arise in the next two months. Indicating that we are not yet out of the woods, leaving an air of uncertainty weighing on markets as we move into 2013.

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2

4

6

8

10

12

134

136

138

140

142

144

146

148

2006 2007 2008 2009 2010 2011 2012 (F) 2013 (F)

Employment Unemployment rate

Unemployment Rate

Persons Employed Millions

Forecast


United States employment

This year, the U.S. economy is expected to gain momentum, if politicians can agree to a long-term plan addressing government spending, tax policy and the debt ceiling.

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While growth will be dampened by fiscal restructuring, quantitative easing (see note above) combined with export growth and continued recovery in the housing and labour markets should generate an improvement in economic growth this year, compared to 2012. 2 A strong economic recovery in the U.S. is unlikely for several reasons: weak confidence, fragile household balance sheets and


-4

-3

-2

-1

0

1

2

3

4

2006 2007 2008 2009 2010 2011 2012 (F) 2013 (F) 2014 (F)

Gross domestic product, constant prices

GDP Growth %

Forecast

QUANTITATIVE EASING

Monetary policy to promote growth typically includes reductions in interest rates. However, the U.S. Federal Reserve cannot take rates lower than they are, and has thus embarked on quantitative easing. This occurs when the central bank purchases financial assets with newly created money in an effort to increase liquidity and lending in the market. It is expected that this will lower the cost of credit to consumers and businesses, theoretically boosting consumption and investment. This would foster job creation.

global economy | united states

United States gross domestic product

persistently tight financial conditions. 1 Canada’s economic prospects are closely tied to the U.S. recovery, because it is our

primary trading partner and Canada has a small, open economy.

SHOWING SIGNS OF LIFE (CONTINUED)


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economic environment | canada

MODEST GROWTH CONTINUES

Three key factors have helped the Canadian economy avoid some of the economic hardships faced in the U.S.: our strong financial sector, our commodity-rich endowment, and our relatively resilient housing market. The 2.6 per cent rate of growth in 2011 eased in 2012, as governments reined in spending, consumption and business investment eased, and an elevated exchange rate weighed on demand for Canadian exports.4

1.8

1.6

1.7

1.4

1.3

1.6

1.6

2.4

2.5

1.7

1.7

0.3

1.8

1.5

1.2

0.9

1.9

2.2

3.1

3.1

2

1.9

Newfoundland & Labrador

P.E.I.

Nova Scotia

New Brunswick

Quebec

Ontario

Manitoba

Saskatchewan

Alberta

B.C.

Canada

2012E 2013F

National real growth rates

Source: Forecast by TD Economics as at December 2012

Global economic concerns and weak growth are restraining Canadian economic activity this year. However, expansion in consumption and business investment is expected to drive moderate growth. Forecasters project a gradual rise in Canadian exports, but levels will remain below the pre-recession peak, reflecting the effect of our elevated currency and diminished U.S. demand. 2

While the national growth rate is expected to remain around 2 per cent this year, this varies significantly from region to region. The resource-rich provinces of Alberta, Saskatchewan and Newfoundland and Labrador are expected to lead the country in growth as they benefit from elevated resource prices and solid levels of capital investments. In addition, Alberta and Saskatchewan differ from the rest of the country in experiencing housing market growth, which contributes to higher consumer spending.5

INTEREST RATES

Global economic risk has weighed on Canadian growth prospects. This, combined with our strong dollar and the U.S. Federal Reserve policy of maintaining low interest rates until at least 2015, has prevented the Bank of Canada from raising interest rates. However, concerns were raised regarding the level of household debt and the risk that it poses to the Canadian market if there were to be another economic shock. In response, changes were introduced to the CMHC lending policy on high ratio mortgages, in an attempt to cool the housing sector. These changes will likely ease the pressure from the Bank of Canada to raise interest rates, and – baring any significant changes in inflation – it is unlikely we will see any increase in the stimulative interest rate until 2014.

HOUSING SECTOR IDENTIFIED AS A RISK

The housing sector has been identified as a risk in the Canadian market, with questions raised about whether our country could experience a U.S.-style housing correction. In a recent report comparing the two markets, Scotiabank identified that some correction was likely on a national front, driven by the two largest markets of Toronto and Vancouver, but a crash is unlikely. 6 The report clearly outlined some key factors that differentiate Canada’s market from that in the U.S. One important factor is the quality of debt. In the U.S., the proportion of the risky debt accounted for 22 per cent of the market pre-crash. In Canada, the subprime market is far less, at 7 per cent.

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RESOURCE RICH PROVINCES LEAD THE NATION IN GROWTH

Alberta’s 5.2 per cent GDP growth in 2011 led the country. The estimated level of activity cooled to 3.4 per cent in 2012, but Alberta remains one of leaders in the country’s economic growth.7

Much of this growth is attributed to the energy sector. Rising oil production is driving up energy exports, more than offsetting continued declines in natural gas shipments. 8 Although 2012 saw increased volatility in crude oil prices, levels were high enough to encourage moderate investment growth. Manufacturing and farmed crop production also grew in 2012.

The economic growth translated into significant employment gains and a corresponding boost in net migration throughout 2012. Alberta wages, already the highest in Canada, continue to rise, driving 2012 migration estimates near to the peak levels of 2006. The significant population gains also boosted retails sales and the housing market. While final job creation numbers for 2012 are expected to be slightly lower than 2011, estimated growth exceeds 2.5 per cent and remains the envy of many other provinces. 7

economic environment | alberta

This year, weaker global economic growth may impact energy demand and price growth. While crude oil prices are forecast to remain high enough to sustain some growth, the uncertainty and concerns over supply levels will likely cause business investors to revaluate expansion plans, causing economic growth to ease to 3 per cent. Alberta’s growth is expected to gain momentum in 2014, as global economic growth finds solid footing.

600

700

800

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1,000

1,100

1,200

Alberta Canada

Weekly full time wages

Source: Statistics Canada, Conference Board of Canada


11

OVER 71 PER CENT OF ALBERTA EXPORTS ARE RELATED TO ENERGY

The state of the energy sector in Alberta substantially affects the economic health in the region. While this reliance has benefited us in many ways, it often subjects the provincial economy to pronounced cyclical swings. Following significant declines in 2009 and 2010, investment in Alberta energy has been on the rise and is forecast to surpass $35 billion in 2013. 7 Oil sands development is expected to account for the majority of the total. The growth in investment will contribute to Alberta’s strong economic growth and job creation throughout 2013. However, the energy industry faces some near-term challenges.

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45,000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Forecast

Alberta energy investment ($ millions)

Source: Statistics Canada, forecast by Conference Board of Canada

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NEAR TERM CHALLENGES ASSOCIATED WITH PIPELINE CONSTRAINTS

economic environment | crude oil

West Texas Intermediate (WTI) prices were volatile throughout 2012, and were expected to end the year at an average of $94 – similar to 2011 averages. Some forecasters anticipate prices will average as low as $88 in 2013 9, while Brent (world price) is forecast to average $103. Alberta producers get a location and gradient discounted price below WTI, and increases in North American supplies and shortage of pipeline capacity have driven that spread higher, according to the Canadian Association of Petroleum Producers (CAPP). Western Canadian crude oil producers need to find new markets for the expanding production, including eastern Canada, new U.S. markets on the U.S. Gulf Coast and Asian markets.

The strong growth in oil production in both the U.S. and Canada has resulted in tight pipeline capacity and that is expected to persist over several years. Other transportation methods, including rail, truck and barge, are more costly. Solutions under consideration include several proposed pipelines, converting existing TransCanada natural gas pipelines to improve access from western Canada to eastern Canada, and building new refineries for our heavy oil. Since expanding pipeline capacity takes time

21 CANADIAN ASSOCIATION OF PETROLEUM PRODUCERS

Western Canadian crude oil is virtually landlocked and as such has very limited connectivity to world markets. Growing conventional, oil shale and oil sands production has created an urgent need for additional transportation infrastructure. Steps are being taken to address this need through a number of project proposals including new pipelines, expansions or modifications to existing infrastructure and increased transportation by rail. Pipelines will, however; continue to be the dominant mode of transportation for crude oil but it will take a few years for pipeline infrastructure to be built. In the short-term, crude oil transport by rail will increase sharply due to the ability to add rail capacity relatively quickly and in small increments as needed and utilizing the rail infrastructure already in place. Figure 4.1 Canadian and U.S. Crude Oil Pipelines - All Proposals

4 CRUDE OIL PIPELINES

Portland

Montréal

Sarnia

Chicago

Cushing

St. Paul

Salt Lake City

HoustonSt. James

New Orleans

Crane

El Paso

Freeport

Edmonton

AnacortesBurnaby

TransCanada Keystone

Alberta Clipper Expansion

TransMountain

BP

Enbridge

Mid

Val

ley

Cap

line

Flanagan

Hardisty

Centurion Pipeline

Magellan Houston toEl Paso (former Longhorn) - partial conversion

Shell Ho-Ho

Express

Platte

Spearhead South Spearhead North Expansion

Superior

WoodRiver

ExxonMobil Pegasus

Cromer

Clearbrook

Guernsey

TransCanadaKeystone XL

Kinder MorganTM Expansion (TMX)

Kitimat Enbridge Gateway

Port Arthur

Mustang

Patoka

Canadian and U.S. Oil PipelinesEnbridge Pipelines and connectionsto the U.S. Midwest and E. CanadaKinder Morgan Express

Kinder Morgan Trans MountainTransCanada KeystoneProposed pipelines to the West Coast

Existing / Proposed pipelines to PADD III

Expansion/Reversal to existing pipeline

Seaway Reversal& Twin Line

TransCanada Gulf Coast

Enbridge Line 9Reversal

Lima

Southern Access Expansion

Flanagan South

Bakken Expansion

Source: Canadian Association of Petroleum Producers

and faces numerous public and political hurdles, benefits from expansions would likely not occur until 2014. 10

North American crude oil demand is expected to be relatively flat, but the ability for western producers to gain

access to the Gulf Coast is attractive, in part because their product could displace some crude oil supplies from other international sources.10 However, in 2013, expansion plans by energy companies will be dampened by weak price expectations and capacity constraints.


13

WEAK PRICE ENVIRONMENT TO PERSIST

Alberta’s natural gas market continues to face challenges associated with a weak price environment. The U.S. continues to have an abundance of natural gas supply, and many Canadian producers are decreasing production as a result.

While some price appreciation is expected in 2013, it is unlikely to prevent further restructuring in this industry as depressed prices will linger for the next two to five years. Longer term, domestic demand is expected to improve, and that will help contribute to the eventual rise in prices.

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100.00

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140.00

West Texas Intermediate Oil Price Henry Hub Natural Gas Price

($U.S. / BBL) ($U.S. / MMBTU)

Source: Statistics Canada

economic environment | natural gas

Oil and natural gas prices

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RELATIVELY STRONG GROWTH

calgary economy | gdp

GDP growth figures surprised many in 2011 exceeding 5 per cent 7 for the Calgary Census Metropolitan Area (CMA). The surge in growth came from the goods producing sector, which includes agriculture, forestry, fishing and hunting, mining and oil-and-gas extraction, utilities, construction and manufacturing. The relatively strong growth in 2011 was driven in part by investments in the energy sector, which created employment opportunities and strong migration. All of which fuelled spinoff activity across all sectors in 2012.

While the pace of growth eased in 2012, spinoff sectors such as wholesale and retail trade recorded strong growth, supporting relatively robust economic growth. Gross Domestic Product for 2012 and 2013 is forecast to grow by 3.3 per cent annually. 7

-6%

-4%

-2%

0%

2%

4%

6%

8%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Calgary CMA Alberta Canada

Y/Y % Change

Forecast

GDP growth comparison

Source: Statistics Canada, Conference Board of Canada Forecast


15

FULL TIME JOBS CREATED

Improving economic conditions resulted in employment growth of 3.4 per cent in 2012. There was a surge in full-time employment growth, with an average annual increase that exceeded 5 per cent compared to 2.7 per cent in 2011. This is the first time annual full-time employment average levels have exceeded those recorded in 2008. Meanwhile, part-time jobs declined from the highs recorded during the recession, which suggests that employers converted some part-time work into full-time.

calgary economy | employment

WAGES AND SALARIES

Wages and salaries in the city are significantly higher than national levels and are increasing not only at a faster pace but also at a rate above inflation. This, combined with low interest rates and relatively stable housing price growth, will help maintain a positive affordability climate this year.

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1.00

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(30,000)

(20,000)

(10,000)

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10,000

20,000

30,000

40,000

50,000

60,000

Full-Time Employment Growth (Y/Y) Part-Time Employment Growth (Y/Y)

Unemployment Rate

Employed Unemployment rate

Calgary CMA full and part time employment

Source: Statistics Canada, Seasonally Adjusted 3 month MA

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Job growth was the strongest in the primary, utilities and manufacturing sectors, which are closely tied to activity in the energy sector. This also supported employment growth in the personal services sector, which includes the entertainment, recreation, accommodation and food services industries.

This year, weakness in global growth could place downward pressure on energy prices. Energy companies also face uncertainty over pipeline approval. This, combined with the rising oil supply in the U.S. market, may cause companies to slow their pace of expansion. While many of these issues are expected to be resolved by the later portion of the year, employment growth is forecast to ease to 2.5 per cent this year.

500,000

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650,000

700,000

750,000

800,000

-2%

0%

2%

4%

6%

8%

10%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

% Change (Y/Y) Total Employment

Y/Y % Change Average Annual Employed

Forecast

Calgary CMA employment growth

Source: Seasonally adjusted data, Statistics Canada, Conference Board of Canada Forecast

FULL TIME JOBS CREATED (CONTINUED)

calgary economy | employment


17

calgary economy | net migration

More than 19,000 people migrated to the city in 2012, according to the City of Calgary census 11. The rise in migration is the result of stronger job growth here compared to the rest of the country.

More migrants are coming from other provinces, with the largest net gains from Ontario, followed by B.C.12 There was also an increase in international migrants. Our active labour force, high wages and relatively low unemployment rate, are fueling this in-migration. As employment growth eases this year, and economic conditions improve in other centres, net migration levels in Calgary are expected to slow to just more than 15,000 over the next two years. Despite the pullback, overall net migration levels remain strong enough to support citywide growth, including the housing market.

MIGRATION IMPROVES TO LEVELS NOT SEEN SINCE 2006

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5,000

10,000

15,000

20,000

25,000

30,000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

City of Calgary

Forecast

Source: City of Calgary

Total City of Calgary net migration

CREB®

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TIGHT RENTAL MARKET

The surge in migrants to the city fueled increased demand for rental accommodation. Demand is expected to remain high for two reasons: migration will remain strong and mortgage rule changes will cause some prospective first-time home buyers to remain in the rental market longer. The apartment vacancy rate dropped from more than 3 per cent in 2010 to 1.3 per cent as of October 2012. With no significant additions in rental supply and strong rental demand, vacancy rates are expected to remain low this year at 1.5 per cent.13 The tight rental market is putting upward pressure on average rents, a trend that will continue this year. Tighter vacancy rates and rising rental rates will help support demand for ownership.

0

1

2

3

4

5

6

Calgary, Privately Initiated Vacancy Rate, Apartments (3+), Total Units

Calgary,Average Rent, Two Bedroom Units, Apartment Structures, Three Units and Over.

Vacancy Rent

Forecast

1,300 1,200 1,100 1,000 900 800 700 600 500

Source: CMHC, CMHC Forecast

calgary housing | rental

Calgary apartment rental market


19

STARTS RECOVER FOLLOWING YEARS OF SLOW ACTIVITY

New home starts surged in 2012, driven by low mortgage rates, strong employment and migration growth and declining supplies in the resale market. 14 Housing starts are estimated to total 12,400 units in 2012, a 33 per cent rise over lacklustre 2011 figures. Starts activity was relatively weak

anticipated as multi-family builders reduce production levels in response to a higher number of units under construction, potentially driving up inventory. 14 This is also in-line with indicators suggesting a slight pullback in employment and migration growth.

COMPOSITION OF NEW HOUSING

As the city is grows, the composition of new housing is changing. Before 2007, single family units accounted for more than 60 per cent of starts. This ratio shifted dramatically by 2008, a year when 60 per cent of starts were multi-family. As the recession took hold, excess inventories in the multi-family market led to significant declines in starts through 2009-2010. Since then, housing starts are trending towards a more equal share between single and multi-family activity and this trend is expected to continue. Over time, this will also change the composition of the resale market, with condominiums accounting for a greater share of activity.

throughout 2009-2011, and the renewed level of growth will bring starts in line with household formation estimates.15

This year, the forecast 11,900 housing starts represent a decline of 4 per cent compared to 2012. The decline is

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2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Forecast

Calgary housing starts

Source: CMHC, CMHC Forecast

calgary housing | new home

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calgary housing | resale market

RETURN TO NORMAL

The resale market finally gained some momentum in 2012 as sales activity rose both within city limits and in surrounding areas. Sales within city limits totaled 21,207, an 15 per cent increase over 2011. While sales growth was slightly stronger than expected, the total represented a recovery to more typical levels of activity. This trend reflected the strong economic activity in the area which generated significant growth in full-time employment and attracted a near record number of migrants to the area. Meanwhile, the level of new listings declined by 6.5 per cent, causing average inventory levels – which have been elevated – to decline by 18 per cent in 2012 from 2011.

The decline in inventory levels put upward pressure on prices. City-wide benchmark prices recorded significant gains in the spring, but leveled off in the last two quarters. Overall, the benchmark price in Calgary averaged $381,408 in 2012, a 5 per cent rise over average figures in 2011. By comparison, the annual median and average prices rose by 4 per cent and 3 per cent respectively.

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5,000

10,000

15,000

20,000

25,000

30,000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 (F)

SF Sales Apartment Sales TH Sales 10 Year Average

Forecast

Calgary total sales

Source: CREB®


21

Although the price increase seems significant, it is important to note that prices in 2011 were falling compared to 2010. Prices in Calgary are recovering, but failed to reach the highs recorded in 2007.

This year, the level of sales growth is expected to ease to 2.2 per cent, for a citywide total of 21,669 units. Slower employment and migration growth, combined with stricter mortgage lending criteria, are expected to ease sales growth. Another factor that will affect sales growth is a slight decline in the number of new listings.

New home starts are expected to remain near 12,000 units, levels that are in line with growth expections, indicating it is unlikely that standing inventories in the resale market will rise. Easing sales growth combined with no significant increases in inventories will keep the resale market in balanced territory. Balanced conditions, rising wages and no further changes expected in mortgage lending rules or rates will support price growth of 2.9 per cent this year.

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-10%

0%

10%

20%

30%

40%

50%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 (F)

Annual Average Price Change Average Annual Index Change Annual Median Price Change

Forecast

City of Calgary price changes

Source: CREB®, CREB® Forecast

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calgary housing | single family

SALES GROWTH ADMIST DECLINING NEW LISTINGS CAUSES GREATER-THAN-EXPECTED PRICE INCREASES

In 2012, the single family market recorded sales growth of nearly 15 per cent, the strongest level of activity since the recession. From 2002 to 2007, sales in the single family market averaged 17,000 units annually. The market has not yet regained that pace, and is not likely to do so this year. The level of new single family new listings continues to decline, limiting potential sales growth for that segment within city limits. There are fewer listings because those who purchased during the peak period have not seen prices fully recover, and, without equity gains, are less likely to list their homes. The composition of housing is shifting, with more new home starts geared towards multi-family development. With no significant changes expected in new listings and with City of Calgary housing policies focused on encouraging multi-family development, single family sales are expected to record only modest growth of 1.8 per cent.

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500

1,000

1,500

2,000

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3,000

3,500

SF New Listings 3 month MA SF Sales 3 month MA

Calgary 10 year single family sales and new listings

Source: CREB®


23

The growth in sales activity in 2012 outpaced new listings, and that depleted average inventory levels by nearly 20 per cent. This placed upward pressure on single family pricing. Benchmark prices averaged $424,708 in the year, a 6.7 per cent increase over the previous year. Despite the rise, the city remained 2.4 per cent lower than average levels recorded in 2007. This year, it is expected that the level of supply relative to sales activity will remain in the lower end of balanced territory – i.e. modest, but adequate, supply. This, combined with rising wages and low interest rates, will encourage price growth. However, continued economic uncertainties, as well as slower employment and migration growth in the city are expected to prevent any significant runup in pricing. Single family prices are estimated to rise by 3 per cent, for an annual benchmark average of $437,449.

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SF Average Price SF Benchmark Price SF Median Price

Calgary single family resale home prices

Source: CREB®

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24

calgary housing | condominium

DEMAND IMPROVES GENERATING SOME PRICE GROWTH

The condominium market consists of apartment style units (both low-rise and high-rise) and townhouse units, which consist of all non-apartment products that are condominium titled. In 2012, the apartment and townhouse markets accounted for 17 per cent and 12 per cent of total city sales activity, respectively.Apartment sales activity rose by 12 per cent in 2012 compared to 2011, while the level of new listings declined by 5 per cent. There are some notable differences between the apartment and single family markets. The average inventory levels in the apartment market declined by 10 per cent in 2012 compared to 2011. This is a notably smaller decline than in the single family housing market. Improving condo sales lagged the single family market due to the availability of single family homes both in the city and surrounding towns at lower price ranges. However, as supplies fell in the city single family housing market, demand for condos picked up.

While market conditions were balanced throughout 2012, prices only started to rise at a higher rate in the second half of the year as supply fell below four months.

Average apartment benchmark prices totaled 244,992 in 2012, a 2.2 per cent

increase over 2011 and nearly 14 per cent below average levels recorded in 2007.

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 (F)

Apartment Sales TH Sales

Forecast

Calgary condominium sales

Source: CREB®


25

The townhouse market activity closely resembled sales and listing activity in the single family market, except in pricing.

In 2012, condominium townhouse sales increased by 16 per cent, while the level of new listings declined by 7 per

cent, resulting in an average decline in inventories of 22 per cent. Yet, even with that activity, the average benchmark price increased just 2.7 per cent to $277,167 in 2012. The improved selection in all price ranges of single family homes and condominium apartments have increased the competition for the townhouse market, limiting the price growth in that market.

With several new multi-family completions expected in 2013, it is expected that some of those units will end up on the resale market, supporting the level of new listings. Demand for condominium units is expected to improve as supply in the single family market remains restrained and tightness in the rental market makes it more difficult to find rental accommodation. Condominium sales are expected to increase by 3 per cent next year. While prices are not expected to reach pre-recessionary highs soon, improving absorption rates should lead to a moderate price appreciation of 2.4 per cent for condominium apartments and 2.8 per cent for condominium townhouses.

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 (F)

Average Apartment Benchmark Price

Average Annual Townhouse Benchmark Price

Forecast

Calgary condominium prices


CREB®

26

SALES GROWTH SURPASSES CITY GROWTH

Sales growth in 2012 totaled 21 per cent in the surrounding towns and far exceeded growth figures in the city. Despite that, benchmark price growth has been slower than citywide levels, with prices increasing by 3.5 per cent in 2012 following a 1.5 per cent decline in 2011. Supply levels in 2011 were high relative to demand, and this made surrounding areas more appealing to consumers seeking affordable product, boosting sales in 2012 and helping reduce the standing inventories by an average of

calgary housing | surrounding towns

SURROUNDING TOWN DATA

Surrounding town data has been revised to reflect areas in the region where CREB® has the majority of the membership versus other boards. Prior to 2012, surrounding town data included all resale activity that was performed by our members in towns outside of Calgary. Some of our members are active throughout the province, and in some areas our membership does not account for the majority of REALTORS® in the area. This can affect the reliability of the data. For this reason, surrounding town data has been revised historically to reflect only activity performed by our members in the following areas: Airdrie, Foothills, Kneehill, Mountain View, Rocky View, Wheatland and Willow Creek.

13 per cent. As supply levels in single family homes tightened within city limits and prices increased at a higher rate, this encouraged consumers to consider surrounding areas. Buyers could often find newer, larger homes on a larger lot for less money outside the city limits.

Easing economic factors will reduce housing demand growth over the entire Calgary region, but growth in the surrounding area sales are expected to outperform city levels as surrounding towns enjoy a price advantage over the city.

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 (F)

Total Sales 10 Year Average

Forecast

CREB® town sales



27

forecast risk

A significant downside risk exists in both the global and domestic economies. If economic conditions worsen in Europe, the emerging markets or the U.S., this will place downward pressure on commodity prices and slow our export market. In severe circumstances, it could slow – if not reverse – growth expectations in Alberta and Calgary. This would reduce jobs growth and consumer confidence, causing the housing market to stall.

The other persistent risk is our reliance on the U.S. market for energy exports, combined with tight pipeline capacity. The net-back discounts Canadian producers are receiving for their oil has widened, and, without the ability to access additional markets through pipeline expansions, investment projects may stall, reducing short-term growth prospects.

Weakness in the natural gas market may cause further restructuring and ultimately result in job losses. If these jobs cannot be absorbed by the oil sector, this could harm confidence, placing downside risk in the housing sector.

DOWNSIDE UPSIDE

If the U.S. is able to resolve internal political uncertainty and its economy expansion accelerates, this could be the signal business investors are looking for, resulting in greater-than-expected investment growth. This would generate higher-than-expected gains in employment and housing demand.

If the political unrest in the Middle East increases, leading to disruption in global oil supply, this could drive up oil prices. Alberta would benefit from this scenario, not only in terms of increasing profitability, but also because it could encourage various nations to seek out reliable, stable sources of energy.

Approval of several outstanding pipelines could boost confidence in the region ultimately increasing demand for housing at greater than expected rates this year and next.

If housing demand growth significantly outpaces supply, this could cause higher-than-expected price increases, especially in single family homes within Calgary city limits. If single family home prices continue to rise at levels seen in 2012, it will likely push increased activity to surrounding towns and to the condominium market, resulting in higher-than-expected overall sales growth.

CREB®

28

forecast summary

2010 2011 2012 E 2013 F TREND FORECASTER

ECONOMIC INDICATORS

Calgary GDP Growth (%) 3.1 5.2 3.3 3.3 Conference Board

Calgary Net Migration* -4,154 9,563 19,658 15,000 City of Calgary

Calgary Employment Growth (%) -1.25 2.95 3.36 2.47 Conference Board

Average Residential Mortgage Lending Rate 5 Year (%) 4.82 4.57 4.26 4.76 Conference Board

Housing Starts: Single Family 5,782 5,084 5,700 5,900 CMHC

Housing Starts: Multiple Family 3,480 4,208 6,700 6,000 CMHC

Apartment Rental Rates* 1,069 1,084 1,150 1,200 CMHC

Apartment Vacancy Rates* (%) 3.6 1.9 1.3 1.5 CMHC

WTI Oil Price (USD) 79.40 94.86 94.26 88.38 U.S. Energy Information Administration

Henry Hub Gas Spot Price (USD) 4.52 4.12 2.86 3.79 U.S. Energy Information Administration

2010 2011 2012 2013 F TREND FORECASTER

MLS® RE-SALE HOMES

City of Calgary

Total Sales 17,218 18,496 21,207 21,669 2.2 CREB®

Total New Listings 36,944 34,068 31,847 31,528 1.0 CREB®

Total Annual Average Benchmark Price 366,258 361,758 381,408 392,469 2.9 CREB®

Single Family Sales 12,043 13,120 15,109 15,381 1.8 CREB®

Single Family Annual Average Benchmark Price 400,950 318,225 424,708 437,449 3.0 CREB®

Condo Apartment Sales 2,933 3,139 3,501 3,613 3.2 CREB®

Condo Apartment Annual Average Benchmark Price 245,917 239,817 244,992 250,872 2.4 CREB®

Condo Townhouse Sales 2,182 2,237 2,597 2,675 3.0 CREB®

Condo Townhouse Annual Average Benchmark Price 277,175 269,892 277,167 284,928 2.8 CREB®

Surrounding Towns

Sales 3,082 3,243 3,970 4,093 3.1 CREB®

Benchmark Price Growth 316,333 311,708 322,450 329,544 2.2 CREB®

F - Forecast * 2012 Actual


29

resource list

1 International Monetary Fund, World Economic Outlook, October 20122 Bank of Canada, Monetary Policy Report, October 20123 TD Economics, U.S. Outlook: Trying to Take Off, But Fiscal Uncertainty is Blocking the way, December 13, 20124 TD Economics, Quarterly Economic Forecast, December 13, 20125 TD Economics, Provincial Economic Forecast, Regional Differences Continue to Play Out on the National Scene, December 19, 20126 Scotiabank – Global Forecast Update, November 1, 20127 Conference Board of Canada, Metropolitan Outlook, November 2012 8 Government of Alberta, 2012-13 First Quarter Fiscal Update and Economic Statement9 U.S. Energy Information Administration, Short-Term Energy Outlook, December 11, 201210 CAPP Candian Crude Oil Forecast and Market Outlook – June 5, 201211 City of Calgary 2012 Civic Census Results, conducted between April 1 and 21, 201212 Alberta Treasury Board and Finance, Economic Trends, October 2012 13 CMHC, Rental Market Report: Fall 2012 14 CMHC, Housing Market Outlook, Fourth Quarter 2012 15 City of Calgary – Calgary and Region Economic Outlook 2012 – 2017 with Long-term Economic Trends 2018-2042, Fall 2012

CIBC World Markets – Economic Insights – October 31, 2012

CIBC World Markets – Economic Insights – September 27, 2012

RBC Economics, Reaserch, Provincial Outlook, December 2012

RBC Economicis, Reaserch, Economic and Financial Market Outlook, December 2012 2012

Calgary Chamber of Commerce, Teetering on the brink of prosperity: 2013 Calgary and Alberta Economic Outlook – October 2012

Energy Resources Conservation Board, ST98-2012, Alberta’s Energy Reverves 2011 and Supply/Demand Outlook 2012- 2021

notes

notes

CREB®

300 Manning Road NECalgary, AlbertaT2E 8K4, Canada

Phone: 403.263.0530Fax: 403.218.3688Email: [email protected]

creb.comcrebforecast.com

Copyright Notice:

©2013 CREB®. All rights reserved. CREB® grants reasonable rights of use of this publication’s content solely for personal, corporate or public

policy research, and educational purposes. This permission consists of the right to use the content for general reference purposes in written

analyses and in the reporting of results, conclusions and forecasts, including the citation of limited amounts of supporting data extracted from

this publication. Reasonable and limited rights of use are also permitted in commercial publications subject to the above criteria, and CREB®’s

right to request that such use be discontinued for any reason.

Any use of the publication’s content must include the source of the information, including statistical data, acknowledged as follows: CREB® 2013

Economic Outlook and Calgary Regional Housing Market Forecast.

CREB® is a professional body of more than 5,000 licensed brokers and registered associates, representing 277 member offices. CREB® is dedicated to enhancing the value, integrity and expertise of its REALTOR® members.

We are committed to equipping our members with the right tools, services and education to achieve professional excellence — and, in turn, enabling REALTORS® to offer the best possible service to their clients.

Our REALTORS® are committed to a high standard of professional conduct, ongoing education, and a strict Code of Ethics and standards of business practice. Using the services of a professional REALTOR® can help consumers take full advantage of real estate opportunities while reducing their risks when buying or selling real estate.

CREB® operates and maintains the Multiple Listing Service (MLS®) System for Calgary and the surrounding area. Through the MLS® System, members and, in turn, their clients have immediate access to the latest information on properties listed for sale. Through the MLS® System, REALTORS® can provide the buying and selling public with the broadest possible market exposure and the most complete and up-to-date market information.

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