Housing Market Outlook Alberta

Alberta's housing starts are forecast to increase by 15.3 per cent to 29,200 units in 2012, following a 6.5 per cent decrease in 2011 to 25,325 units.

These robust gains are a result of a number of factors.Firstly, the economy is projected to show relatively strong growth over the forecast period.In 2011, real gross domestic product is expected to rise by 3.1 per cent, followed by 3.5 per cent in 2012.Note, however, a pullback in oil prices during the summer, along with various wildfires, briefly slowed economic conditions, but these effects have dissipated.

Secondly, employment growth is projected at 3.4 per cent in 2011, lowering the unemployment rate from 6.5 per cent to 5.6 per cent. By 2012, the unemployment rate is expected to be lowered to 5.1 per cent. As a result, this will put upward pressure on Alberta's housing sector.

Finally, the demographic outlook for Alberta is positive.With an improving economy generating jobs, it is expected more migrants will choose Alberta as their home.Last year was a 15-year low for migration to Alberta. Moving forward, expect significant growth in migration this year with further gains in 2012.These gains are also expected to put upward pressure on the demand for housing within the province.

In Detail

Single Starts: Single-detached starts are projected to decline about ten per cent in 2011, as builders mitigate the risk of rising inventories.Over the balance of the forecast period, demand for single-detached homes will improve with a growing economy and job creation.In 2012, singledetached starts are expected to rise by over 15 per cent to 18,400 units.The number of single-detached units under construction in August was at approximately half the level reported five years ago.However, with the inventory of complete and unabsorbed units up from the previous year, builders have been cautious about expanding production.

Multiple Starts:More affordable condominium projects are now competing with the resale market and enticing some renters to move into new condominium units.After a slow start to this year, the pace of multi-family starts has picked-up and is expected to edge past last year's level of production.In 2012, demand is expected to improve with rising incomes and new household formation, raising the level of multifamily production by 14.6 per cent to 10,800 units.

Resales:The number of MLS® sales in Alberta is projected to increase by over six per cent in 2011 to 52,800 units.In 2012, MLS® sales are projected to rise to 53,900 units.

Prices:Most of Alberta's major urban centres remain in buyers' market conditions as indicated by a sales-to-new listings ratio that has fluctuated around 50 per cent this year.The average resale price in 2011 is expected to rise fractionally above last year's average, with much of the price movement attributed to compositional effects.As Alberta's economy generates employment and attracts more migrants, demand will rise and improve market balance. The average resale price in Alberta is projected to rise by more than two per cent in 2012 to $362,700.

Source: Canada Mortgage and Housing Corporation (CMHC)

Fixed Mortgage Rates vs. Variable Mortgage Rates

Fixed Rate
A fixed rate means that your interest rate remains the same (fixed) for the entire term (duration) of the loan. Generally, this means the percentage of interest will be a little higher since the lending institution may be losing money in the future if the interest rates rise. A fixed rate loan provides the buyer with the serenity of knowing the cost of their interest will stay the same over time. This means your payment and the amount that goes towards reducing the principal (original loan amount) will remain the same over time as well.

Variable Rate
A variable rate means the percentage of interest that you are repaying will vary based on the changes in the interest rate(s) of the overall market. Typically, fluctuations in your interest rate will not alter your monthly payment, but will vary the amount of your monthly payment that goes towards reducing your principal (original loan amount). This means if overall interest rates go down you will actually be paying off your loan more quickly. On the other hand, if interest rates increase, you will be paying off your loan more slowly. Accepting a variable rate does involve a certain amount of risk but can work to the advantage of the buyer over time.

Open Mortgagevs Closed Mortgage (mortgage types)

Open Mortgage
An open mortgage means that the loan can be paid back partially or in full without incurring any penalties. The mortgage can also be renegotiated if market conditions or your financial situation shift. Although an open mortgage provides more options and opportunities for life adjustments, this comes at a cost, as the interest rates for this type of loan tend to be higher. For those able to make larger payments or who plan on selling their home within a short period of time; however, an open mortgage can be a solid choice.

Closed Mortgage
The advantage of a closed mortgage is that the interest rates tend to be lower, but options are limited. Typically a homeowner may make extra payments or larger payments as long as the sum of the payments does not exceed a set amount determined in the loan agreement. Payments exceeding the agreed upon amount; however, would incur penalties.

Although most buyers will elect to choose a closed mortgage, there are advantages to choosing the open mortgage. For instance, if market conditions are expected to change, the type of mortgage should be balanced against the type of interest rate so that as the buyer your needs are .

Best Mortgage Rates Alberta

No matter which province or territory you reside in, finding the best mortgage ratecan save you thousands of dollars. Obviously, there are not many people who can purchase property without taking out a home loan. Taking out a home loan lets you buy, live in and/or use a home without needing to come up with the full dollar amount at the time of purchase. Usually the amount of the loan is equal to the majority of the home’s worth, but the downfall of this is that you will be required to pay interest on the loan. Most lenders insist on a down payment, i.e., a payment equal to a portion of the property’s worth. For instance, if a home is worth $200,000 and the buyer would need to make a down payment of 10%. This would equal a $20,000 down payment ($200,000 x 10%). To make up the balance, the lender would loan you $180,000 ($200,000 minus the $20,000 down payment).

When you are dealing with interest rates on large amounts of money even a variance in interest rates as small as an eight of a percent can make a significant difference in the amount you will be required to repay. Typically the interest is also calculated over long periods of time, which puts even more emphasis on securing the best rate possible. To make things more complicated there are also different rate and mortgage rates. This can make it difficult to determine whether you are comparing apples to apples or apples to oranges.

Interest rates can vary widely even from day to day so locking in on the best rate is extremely important. One of the easiest ways to do this is to enlist the help of a mortgage broker who can act as an entry way to a variety of lending institutions – banks, credit unions, etc. Mortgage Rate Comparison website like Ratesheet.ca could help you get the best mortgage rates and save you thousands of dollars. Its is advised that you compare mortgage rates before you lock in with any lender.

A potential buyer also needs to understand how much is a reasonable amount to borrow as well as the implications of payment frequency.