One of Alberta's biggest home builders says the current real estate downturn could soon be turned on its head, with resurgent demand and dwindling inventory.
"My gut tells me it's going to be a tough next six months until consumer confidence is re-established," says Allan Klassen, president and managing partner of Calgary-based Albi Homes. "My gut also tells me we will get through this period and there will be pent-up demand this summer and fall, creating, potentially, another challenging issue – high demand and low supply."
Over all, Mr. Klassen feels the "long-term outlook is still very positive."
Canada Mortgage and Housing Corporation said recently that Alberta's key housing drivers (migration and jobs) have slowed and so, too, will housing demand.
After climbing nearly 13 per cent in 2014 to 40,590 homes of all types, construction starts are projected to decline to just over 36,000 this year, then slip a further 1,500 units in 2016. In Calgary and Edmonton, the largest declines will occur in the multifamily sectors. On the resale side of the housing ledger, CMHC projects that MLS sales will lose less than 700 sales from the 2014 total of 71,773 and then hold steady in 2016.
Mr. Klassen recalls that when the oil price started to decline last summer, there was still an under-supply of inventory that allowed the relatively strong market to continue. But come the fall, traffic and sales started to soften as oil prices slid.
"The steady decline continued into the typically slower months of December and January, basically shutting down traffic due to consumer confidence being swayed by media influence and concern about future values and job security," Mr. Klassen says, adding that impact was felt in most price categories. But traffic into show homes showed a dramatic increase in February; deposits were made, and there was new "life to the market."
Mr. Klassen, fresh from Halifax where his company collected an award from the Canadian Home Builders' Association as the country's top home builder, says the sudden drop-off in business was softened because the home building industry had such a strong 2014.
"Most companies like ours had significant carryover from 2014, so closings should remain strong. Starts, on the other hand, will see a significant impact in the first two quarters due to few presales and a buildup of spec inventory that has not moved as quickly as in the past year.
"Unfortunately," he says, "most of us have been through this before and each builder will approach it differently. For those without a land supply in the future, their approach could cause a restructuring and/or downsizing; whereas builders who have significant commitments in the future – like we at Albi do – [plan] to avoid job losses and keep the disruption to both employees and customers as muted as possible.
"This downturn is different because it's due to geopolitical disputes that can change quickly, and is not a reflection of a typical recession," Mr. Klassen says. "As well, unemployment numbers are still relatively low, rent rates are low, MLS inventories are manageable; and, in Calgary, a shortage of serviced land are all determinators that provide a solid foundation for a strong responding market."
He says one thing not to expect is a decline in new home prices.
Low borrowing costs and a potential shortage of serviced land will combine to prop up prices. "Low interest rates will initiate activity for many consumers who see 2015 as a great time to purchase a new home," he says.