| || ||Robin Wiebe |
Senior Economist, Centre for Municipal Studies
Edmonton deserves its own place in the spotlight, rather than always having to compete with its high-wattage rival three hours down Highway 2. Indeed, Edmonton’s economy and housing market have been improving and are outperforming Calgary on several fronts. These yardsticks include faster economic and house price growth this year, along with more housing starts in four of the past five months. The city’s housing markets should remain buoyant, fuelled by healthy population advances.
Edmonton’s relatively large public administration sector—twice the size of Calgary’s as a share of total output—helps balance the local economy. This stability has allowed the Edmonton economy to actually outperform that of Calgary over the past 20 years, with higher average annual GDP growth over that period. Oil and gas are also important to Edmonton’s economy, most evidently as the driver of the city’s numerous refineries and energy supply industry. As a result, housing prices doubled between 2003 and 2007.
The relative constancy of the Edmonton economy was not enough to shelter it from the 2009 recession, as GDP contracted by about 4 per cent in the city. Then, the 2008 financial meltdown and subsequent recession hammered Edmonton’s housing market. Housing starts in 2008 were less than half than in 2007 and have yet to fully recover. The resale market also suffered. By 2010, sales were 25 per cent below their 2006 peak, although the average price fell only 5.4 per cent in 2008 and 2009.
But conditions are improving. Edmonton’s GDP expanded smartly in 2010 and 2011 and solid future gains are in the cards. Employment leapt in 2011 following two years of decline, and will continue growing, albeit more slowly, in 2012 and 2013. This job growth is rekindling migration inflows, particularly from other provinces. Population growth of roughly 2 per cent is expected in both 2012 and 2013, below the 2.6 per cent average recorded between 2005 and 2009, but up from an average nearer 1.7 per cent in 2010 and 2011.
Both existing home sales and housing starts were slashed below demographic requirements by the recession and these shortfalls have been slow to unwind. Accelerating population growth adds to this pent-up demand and sends a clear signal of future strength in both the new and resale markets.
The housing market is indeed regaining vigour. Sales of existing homes are on track to rise about 5 per cent this year, on the heels of a 3 per cent gain last year. This rising demand has yet to attract additional supply from cautious homeowners, so listings are little changed this year after a 4 per cent drop in 2011, and the sales to listing ratio has risen to average nearly 54 per cent this year, up about three percentage points from last year. The tightening market has boosted price growth to about 3 per cent in 2012 following a 1 per cent dip in 2011. The market remains balanced, though, and firming prices should attract fresh supply.
Stronger housing demand is also boosting new construction. Housing starts are on track to exceed 12,000 units this year—a post-recession high. Rising construction of both single-detached and multi-family units fuels the upswing. About half of this year’s starts are singles, in line recent norms.
And housing remains affordable in Edmonton. In 2011, the average existing home sale was priced at $325,614, nearly $40,000 below Canada’s mean. At this price, the average mortgage charges consumed only 16.6 per cent of average household income, below similar figures in towns like Calgary, Ottawa and Québec City.
For 2013, continued low interest rates and decent economic growth should fuel solid housing demand, although the recent mortgage-rule tightening should have some dampening effect. But above all, continued sound population growth will prevail and sustain a strong housing market.