Fitch: Alberta Showing Early Signs of Housing Weakness

NEW YORK--(BUSINESS WIRE)-- The prolonged state of low oil prices is beginning to adversely affect the Alberta housing market, where prices are currently 17% overvalued according to Fitch Ratings.

Home prices in Alberta have begun to weaken, dropping by 2% over the last two quarters, based on data from Teranet. It is important to note that this decline is modest and potentially exacerbated by seasonal trends. That said, other indicators suggest that a weakening economy is likely to impact the Alberta housing market going forward.

With oil prices off more than 40% from a year ago, there are broader worries of a contraction in the region. Primarily off job losses in the energy sector, unemployment rates are up 0.50% from a year ago as of April 2015, with further increases likely. Mining, oil and gas extraction is responsible for 27% of the province's GDP. On a positive note, total employment has increased, but with population growth of 2.2% (compared to a national growth of 1%), the market has not been able to absorb the additional labor force.

With employment prospects shakier in a region highly dependent on commodities pricing, uncertainly has begun to chip away at demand for housing. According to data from the Canadian Real Estate Association, total home sales numbers are off by more than 20% from a year ago, as of March 2015, despite an increase of 9.5% nationally over the same period.

Fitch currently estimates Alberta home prices to be 17% overvalued based on analysis from its Sustainable Home Price model (SHP). The SHP model evaluates market overvaluation by comparing home prices level to demand support from long-term economic fundamentals, such as income, unemployment, and mortgage rates. This analysis is intended as a point-in-time estimation of overvaluation and not a specific prediction of declines, which are expected to be significantly more modest.

Fitch views Canadian prices as overvalued by approximately 20% across the country, though downside risk has remained limited due to upward economic pressures. With a softening of the Alberta economy, the risk of continued price drops increases. Declines are likely to hit homebuilding, part of a construction sector which represents a further 11% of Alberta's GDP. Fitch continues to expect that any damage from falling home prices would be relatively contained. This is primarily due to a lack of riskier mortgage products in the market, though high borrower household debt-to-income ratios remain a cause for concern.

Additional information is available at 'www.fitchratings.com'.

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Fitch Ratings
Stefan Hilts
Director
+1 212-908-9137
Fitch Ratings, Inc., 33 Whitehall Street, New York, NY, 10004
or
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Source: Fitch Ratings

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