Starts decline in 2009, growth returns in 2010
Canadian Funding Corporation cites that after exceeding 11,000 units for five successive years from 2002 to 2007, total housing starts across the Edmonton Census Metropolitan Area (CMA) declined by nearly 56 per cent in 2008. Housing starts across Metro are forecast to decline by 51 per cent this year to 3,250 units. Last year, single-detached house builders bore the brunt of the downturn as the industry struggled to contain the rise in spec home inventories. In contrast, most of the decline this year will occur in multi-family where inventories continue to mount. A weakened economy impacted by job losses, rising unemployment and slower immigration will account for the continued downward adjustment this year. In 2010, a gradual turnaround in the economy of the Capital region will result in a 26 per cent improvement in housing starts to 4,100 units.
However, next year’s output will represent less than 40 per cent of homes built on average during the 1999 to 2008 period which represents the strongest decade for housing starts on record across Greater Edmonton. Stronger economic growth, higher gains from migration, and a return to balanced conditions in the resale and new home markets will be needed prior to total annual starts rebounding to the longer term average of between 6,000 to 7,000 units.
Single-Detached Starts to Improve in 2010
Single-detached home builders across Metro Edmonton started 2,613 units in 2008, representing a 66 per cent drop from the previous year and the weakest performance since 1995. Activity to the end of March suggests that 2009′s production will fail to match 2008. Nonetheless, downward trends in the new home inventory combined with the lowest number of units under construction in March since 2002 sets the table for a modest turnaround at some point in 2009. CMHC’s view is that year-over-year improvements will occur during the second half 2009 but will not arrive in time to lift this year’s numbers above 2008 levels. Single starts in 2009 will decline another 24 per cent to 2,000 units before improving to near the 2,600 unit mark in 2010. While representing a healthy 30 per cent gain over the current year, 2010′s outlook represents about one-third the number of homes started annually between 1999 and 2008.
The turning point in single starts should occur this year provided certain conditions are in place. Total supply, which is units in inventory plus those under construction, began to decline in the first quarter of 2008 and continues to move lower in 2009 due to the major slowdown in construction that began in earnest in the fall of 2007. New house inventory stood at a record level in August 2008 but has generally been receding since then. These trends will need to be sustained in the coming months so that house builders feel confident this fall that inventory replenishment is justified to prepare them for the important spring selling season.
Economic Growth Returns in 2010
The downturn in the energy sector will impact growth across the Capital region this year and into 2010. Edmonton remains Alberta’s fore- most supply, service and staging area for the energy sector. With a substantial number of drilling rigs expected to sit idle this year, the impacts of this slowdown will be widespread. Lower global oil prices will reduce the output from the manufacturing sector, particularly the area’s petroleum upgraders and refineries. The construction sector will also be held back by low levels of residential activity and a slowdown in
non-residential activity as well. A number of large-scale energy-related projects slated for the Alberta Industrial Heartland area have been scaled back or put on hold until the business climate improves.
