Market Analysis January 2017

Posted on February 17, 2017 by AREA Staff in Market Analysis, News
January 2017

 
Homes provide shelter and refuge, but they are also most Albertan homeowners’ single largest investment. Housing represents 47% of total assets for the average Alberta family – much higher than stock market investments and pension plans combined (29%). Why is this important? Because homeownership benefits the economy, as well as individual homeowners. Let’s look at this in the context of the most recent stats on Alberta’s real estate, reported by the Canadian Real Estate Association.

Did you know...

Investing in housing in Alberta is better than buying stocks

Over the last 18 years, house price appreciation in Alberta has outpaced Toronto stock market returns. Between 1999 and 2016, with average annual residential sales of roughly 57,000, house price growth in Alberta (6.6%) outpaced yearly returns on stocks traded on the Toronto Stock Exchange (6.4%).

Average residential prices up 3.1% in Alberta in January

Total residential sales across the province were up 17.7% year-over-year, totalling 2,679 resale transactions in January 2016. Roughly 3.4 out of every 10 newly listed homes were sold, translating into a sales-to-new listings ratio (SNLR) of 34%. And the average residential sales price rose 3.1%, to $383,040.

Calculating return on equity

Using Statistics Canada’s data on Alberta homeowners’ mortgage balances (Surveys of Financial Security), we calculated equity shares by age group. Equity shares multiplied by user costs (average two-bedroom apartment rents used as proxy) provided the income generated (returns to equity) per homeowner, by age class. The annual income generated by homeownership was then derived by multiplying the number of homeowners by age group in Alberta with returns to equity per homeowner. 

For those under 35, the income generated by homeownership reached $11,000 a year per homeowner

Over the past five years (2012-2016), the annual income generated by homeownership averaged roughly $57,000 per homeowner (all ages) in Alberta. Returns on equity per homeowner ranged from annual income generation of $11,000 for homeowners under the age of 35 (generally considered as first-time buyers), to roughly $14,000 for those above 65 (annual average).

REALTOR® Tip

First-time buyers build equity in their home as they pay off their mortgage – roughly $11k a year!

For every $1 rise in housing prices, Albertan homeowners raise their personal spending by 6.7 cents – collectively $5 billion a year

The increase in consumer spending following a rise in in house prices has been referred to as the marginal propensity to consume (MPC) from housing wealth. We found that, for every $1 increase in average residential prices, Albertans raise their personal spending by 6.7 cents, which collectively amounts to roughly $5 billion a year (2012-2016 average).

Five billion dollars a year is 1.5% of provincial GDP, and 11% of government revenues. This is a significant boost to Alberta’s economy. A 3.1% price gain, like the one we just saw in Alberta this January, equals an average increase of $11,420. The associated rise in consumer spending that could come out of that is $868 per homeowner per month, or $10,415 per homeowner per year, or a collective increase of $616 million a year. 

 

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