Edmonton is a vibrant urban area that is home to almost 1.2 million people. The region has a diverse economy that has remained somewhat sheltered it from the economic downturn that has gripped much of North America, and other areas, for the previous few years. Local residents and investors are paying close attention to the housing market in this Alberta city to determine when the ideal time to purchase a new property is. While some may be trying to time the market to take advantage of a great deal, the market in this area can be challenging to predict and may not follow suit with many other larger Canadian cities.
A Diverse Economy
Real estate is often viewed as a lagging indicator of the economy, and in Edmonton, this is no different. The economy in Edmonton is rather diverse, and it is largely based on oil and gas, petrochemicals, trade, commerce, and other industries. Because of its diverse economic base and the fact that at least part of its base-oil and gas-is fairly well-insulated from economic downturns, Edmonton has not experienced the large decline suffered by other Canadian cities during the last economic recession. In fact, several thousand new jobs have been created within the last year in the Edmonton area. It is important to note, however, that while other areas of Canada may have an economy that is improving after the recession, the economy in Edmonton did not take a serious hit during this time. Therefore, while there is strong economy in place, there is technically no economic recovery that is driving housing prices.
Affordable Interest Rates
During and after the recent recession, Edmonton did benefit from low mortgage rates. In fact, across Canada, interest rates are considerably lower now than they were in the mid-1980s and 1990s. Consider that the 25-year mortgage during the early to mid-1990s was in the double digits. Even in December 2000, the interest rate for a 25-year mortgage was 7.81 per cent. In December 2012, the same loan program has a 4.15 per cent interest rate. When interest rates are lower, homeowners may also be more inclined to refinance their property and stay in their home. However, Alberta homebuyers may also be able to afford to buy larger and more expensive homes, making it more affordable for renters to move into homeownership.
The Edmonton metropolitan area experienced a large increase in single family starts in 2012 and early 2013. In the metropolitan area, the number of new starts in December 2012 was about 12 per cent higher than the number in December 2011. Inside the city limits, the increase for this same time period was close to 20 per cent. In addition, in December 2012, the number of new construction homes available for sale on the market decreased slightly over the available inventory for December of the prior year. This reflects an increase in the demand for newly built homes in the area, as well as cheap Alberta mortgage rates.
The Price of New Homes
In December 2012, the average price of a single, detached home in Edmonton was close to $543,000. In December 2011, this same average price was $519,000. Furthermore, data indicates that there is a narrowing gap between the average and median sales price of homes in the local area, meaning that more of the lower priced homes are being sold. Therefore, while home prices are increasing overall in the local area, the demand for lower priced homes may be higher than the demand for higher priced homes.
Edmonton Resale Market
A look at trends in the Edmonton resale market indicates strong demand for resale homes. During the last quarter of 2012, sales of these homes edged down slightly, but there was a one-per cent increase in the number of resale units sold between December 2011 and December 2012. This may be driven by the robust economy as well as positive net migration into the area during this period of time. While the number of resale units sold increased slightly, the number of new listings of resale homes actually decreased (between the fourth quarter of 2011 and the fourth quarter of 2012, the number of listings dropped by approximately four per cent). However, the average sales price of resale residential homes moved up by about three per cent during this period of time.
A Future Projection
The housing market in Edmonton appears to be promising for 2013. In fact, Huffington Post Canada reports that according to the Canada Real Estate Association, "Edmonton was the only large urban market in Canada that surpassed last year's numbers."
While it is important to note that there may be some signs that housing prices are becoming unaffordable for some homebuyers despite the low interest rates, this may create a seller's market for more affordable homes as the demand for lower priced units remains consistent or increases over the next year.
Trying to time the real estate market can be stressful, and it is rarely done with certainty. Given the signs that the housing prices may continue to rise, sellers may benefit from holding onto their property for a slightly longer period of time to take advantage of rising real estate prices. Those who are interested in buying real estate in Edmonton, however, may want to consider the benefits associated with acting quickly.