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August 2010 Alberta Economic Fundamentals

Ally

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Albertans cautious about economy: Poll

Rising interest rates are weighing on Alberta consumers, who are growing more cautious about the strength of the economic rebound, a new survey shows.

Overall confidence levels remain positive, according to the poll conducted for PricewaterhouseCoopers LP by Leger Marketing and provided to the Herald. But half of respondents also say they have changed their spending as a result of the economic slowdown, a sign of concern over the impact of higher borrowing costs on personal debt loads.

"Consumers are starting to take a look at what (higher) interest rates do to their spending habits," said Ian Gunn, Calgary-based partner of PwC`s private company service practice.

Among the most cited change was cutting spending at 77 per cent, while 58 per cent also said they shopped more sales.

Using cash instead of credit came in next at 41 per cent, followed by paying down debt faster at 35 per cent.

The fluctuation in confidence levels follows the uneven pace of the economic recovery in Alberta, said one economist, pointing to signs of a cooling housing market and a lack of consistent job gains.

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Calgary No. 1 for real estate investment

When investing in real estate, sometimes it`s necessary to look beyond your own backyard.

The Real Estate Investment Network, a national organization of investors, has compiled what it says are the top 10 Canadian cities in which to invest, with Calgary leading the way. But only a handful are major cities, and some are surprising.

Don Campbell, the group`s president and one of the researchers on the study, says the results are based on factors such as planned transportation improvements, or if the area`s average income, population growth and job growth are increasing faster than the provincial average.

Nothing east of Ontario shows up on the list, and while Campbell says cities like Halifax, Saint John and Moncton "still provide decent returns," the top cities are ones that will outperform the national average between 2010 and 2015.

Calgary was ranked at the top because it`s "poised to outperform the average by a wide margin," says Campbell.

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Housing starts fall in July

OTTAWA — The annual rate of housing starts in Canada fell 1.6 per cent in July to a seasonally adjusted 189,200 units from an upwardly revised 192,300 units in June, Canada Mortgage and Housing Corp. said Tuesday.

"Housing starts moved lower in July, largely due to a decrease in urban single starts and a reduction in rural starts," Bob Dugan, chief economist at CMHC`s market analysis centre said in the report. "Multiple starts partially offset this moderation."

The number of starts is higher than the 185,000 economists polled by Bloomberg had called for.

David Tulk, senior macro strategist at TD Securities, said, "The decline in total starts can be traced to a resumption in the decline of single-unit starts, which fell by 11.4 per cent. By comparison, the always-volatile multiples component rebounded by 13.4 per cent following a revised 5.1 per cent decline in June. Regionally, starts were weaker in British Columbia (-14.8 per cent), Ontario (-2.6 per cent), and Quebec (-0.4 per cent) while the Atlantic Canada (+37.7 per cent) and the Prairie Region (+14.4 per cent) both posted outsized gains."

Meanwhile, in a separate report, new home prices in Canada rose 0.1 per cent in June following a 0.3 per cent increase in May, Statistics Canada reported Tuesday.

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Albertans wary of rising interest rates, economic recovery: Survey

Rising interest rates are weighing on Alberta consumers, who are growing more cautious about the strength of the economic rebound, a new survey shows.

Overall confidence levels remain positive, according to the poll conducted for PricewaterhouseCoopers LP by Leger Marketing and provided to the Herald. But half of respondents also say they have changed their spending as a result of the economic slowdown, a sign of concern over the impact of higher borrowing costs on personal debt loads.

"Consumers are starting to take a look at what (higher) interest rates do to their spending habits," said Ian Gunn, Calgary-based partner of PwC`s private company service practice.

Among the most cited change was cutting spending at 77 per cent, while 58 per cent also said they shopped more sales.

Using cash instead of credit came in next at 41 per cent, followed by paying down debt faster at 35 per cent.

For Calgary consumers such as Mary Oliphant, the economy has yet to show signs of consistent growth and she has pared her spending accordingly.

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Alberta now king of mining

For mining companies, there seems to be almost no place left to hide.

With commodity prices remaining stubbornly high, host governments around the world keep looking for ways to shake down the industry for cash, even in places that are traditionally pro-mining. The result is an ever-more uncertain environment.

This is a key take-away from the Fraser Institute`s mid-year update of its mining company survey, which was released Wednesday. Miners judged that attitudes toward the industry have gotten worse in 41 of the 51 jurisdictions surveyed since the last update in April.

The report ranks the jurisdictions based on how attractive they are for mining, and with many pro-mining countries either raising taxes or trying to, it feels like last man standing at the top of the rankings.

Alberta ended up unseating Quebec for the top spot. That was not due to any great achievement by Alberta, but rather an unexpected mining tax hike in Quebec, which fell to third place.

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Upgrader project takes step forward

A proposed upgrader project took another step closer to reality last week as the Alberta government paved the way for more negotiations with North West Upgrading.

The provincial cabinet and caucus both gave their approvals for negotiations with the company after it was selected to receive 75,000 barrels from the Bitumen Royalty in Kind (BRIK) program.

A deal could be finalized as early as this fall, which would allow construction to get under way on the first phase of what would ultimately be a 150,000-barrel-per-day facility.

Several years ago when the company last issued an estimate, they suggested the first phase of 50,000 barrels could cost $4.2 billion to build and generate 2,000 construction jobs.

St. Albert MLA Ken Allred said having the government`s BRIK program help the North West project, could help get other developments under way.

"With the downturn in the economies and all of the upgraders that were proposed prior to the downturn, this one is now back on the books and hopefully will be a catalyst."

Originally, four upgraders were proposed for the region, but none of the others are as close to construction as North West and only one other project, the Fort Hills plant, has regulatory approvals in place.

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Report sees rising demand in Calgary`s industrial real estate market

CALGARY - The business environment in Calgary has improved "markedly" and tenants are beginning to show confidence in making transactions in the local industrial real estate market, says a new report.

The report, by DTZ Barnicke, said the vacancy rate in Calgary`s industrial real estate market dropped for the second consecutive quarter, in the second quarter of this year, from 5.96 per cent to 5.57 per cent.

"Overall, the vacancy rate has dropped 77 basis points from the high reached in (the fourth quarter) of 2009," said the report.

It said deal flow has picked up and absorption has totalled nearly 1.5 million square feet in the first two quarters of this year, "reversing the trend of negative absorption which was the story in 2009."

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Town and country home sales in Calgary region more resilient

CALGARY - MLS sales in areas outside the city have surpassed year-to-date levels compared with 2009 in contrast to what has been happening in Calgary.

Recent MLS stats by the Calgary Real Estate Board indicate sales in the towns outside Calgary market are up by 2.99 per cent to 2,311 transactions until the end of July compared with the first seven months last year which had 2,244 sales. The average sale price year-to-date is $363,729, up 4.82 per cent from last year`s $347,002.

The country residential market, which includes acreages, has seen year-to-date sales up by 5.87 per cent from a year ago to 397 from 375, while the average price of $858,413, an increase of 11.55 per cent from 2009`s $769,546.

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Calgary`s rural real estate market heats up

CALGARY - MLS sales of rural land in the Calgary region have increased in the first seven months of this year compared with the same period a year ago.

And the Calgary Real Estate Board says the average sale price has risen as well.

According to recent statistics by the board, there have been 134 transactions involving rural land so far this year until the end of July, up 36.73 per cent from a year ago (98).

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Truck sales lead as Alberta outpaces Canada for vehicle purchases

CALGARY - The number of new motor vehicle sales in Alberta rose in June by a higher percentage than the national average on a year-over-year basis.

Statistics Canada reported today that sales were up 9.1 per cent in the province to 16,831 vehicles. That was also a 2.5 per cent increase from May.

Nationally, sales rose by 7.7 per cent from June 2009 and by 2.5 per cent from May to 130,135 units.

The federal agency said higher truck sales were the main contributor to the increase across the country. It said preliminary industry data indicate that the number of new motor vehicles sold increased by one per cent in July.

Statistics Canada said the sales of trucks, which include minivans, sport-utility vehicles, light and heavy trucks, vans and buses, increased 3.2 per cent to 72,709 units in June. "For the past seven months, truck sales have surpassed passenger car sales. This is the longest period in which sales of trucks have exceeded sales of passenger cars" since 1946, said the federal agency.

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Economist predicts steadly rising home prices for Alberta

CALGARY - Alberta home prices are expected to rise by 2.6 per cent this year and another 0.9 per cent in 2011, according to an analysis of the Canadian housing market by a senior economist.

Robert Hogue, with RBC Economics, said in his report that the province`s average value of a detached bungalow will increase to $338,000 this year and then to $341,800 next year.

"The sharp drop in demand considerably weakened market conditions in recent months," he wrote in his analysis. "While supply has begun to adjust modestly downward, it remains plentiful, even a little excessive relative to the current pace of home resales.

"Consequently, the provincial market has shifted very close to being a buyers` market, which will exert some downward pressure on home prices in the near term. As demand picks up later this year and further downward adjustment is made to supply however, we expect that a stronger balance will emerge that will lead to moderate price increases during the course of next year."

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Economist predicts housing market rebound

Continued strengthening of Alberta`s economy will lead to a turnaround later this year in the province`s housing market, says a senior economist.

Alberta home prices are expected to rise by 2.6 per cent this year and another 0.9 per cent in 2011, according to an analysis of the Canadian housing market by Robert Hogue, with RBC Economics.

He said in his report the province`s average value of a detached bungalow will increase to $338,000 this year and to $341,800 next year.

"The sharp drop in demand considerably weakened market conditions in recent months," he wrote in his analysis.

"While supply has begun to adjust modestly downward, it remains plentiful, even a little excessive relative to the current pace of home resales.

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Good deals for homebuyers in the Calgary market, says expert

It`s kind of early to tell exactly what`s going to happen to the resale housing market in Calgary as we move deeper into the second half of what has been an up and down year.

The biggest problems facing the industry are an oversupply of homes for sale joined by an undersupply of willing buyers.

For the past two months, Calgary Real Estate Board figures show that sales of used single-family home have lagged behind those in 2009 -- after five consecutive months of being ahead.

On the condo side of the ledger, July marked the first time the year-over-year sales comparison dipped into the red.

In terms of the level of inventory, the number of detached single-family homes for sale climbed steadily, more than doubling between January and the end of June to 5,991.

But last month, inventory fell back to 5,525. Condos, meanwhile, declined for the second straight month after peaking at 2,656 in May.

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Calgary MLS sales took 41% hit in July, real estate association reports

CALGARY - MLS residential sales in Calgary and in Alberta fell in July at a bigger rate than the rest of the country on a year-over-year basis, says the Canadian Real Estate Association.

The association says Calgary registered only 1,612 MLS sales during the month - a drop of 41.3 per cent from July 2009 - while Alberta had 4,086 sales for a 37.4 per cent decline.

Across the country, CREA said sales dropped by 30 per cent from a year ago to 35,158.

In Calgary, the average sale price was up 5.5 per cent to $402,809 and new listings added decreased by 7.2 per cent to 3,596.

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Conference Board gives Calgary housing market long-term thumbs up

CALGARY - Short-term and long-term expectations for housing starts in the Calgary census metropolitan region are positive, according to a report released today by the Conference Board of Canada.

In its monthly report, the conference board said most CMA`s across the country have positive expectations for housing starts in the near future.

Joining Calgary on that list are Halifax, Oshawa, Toronto, Hamilton, Kitchener-Waterloo, Windsor, Winnipeg, Edmonton, Vancouver, Victoria and Abbotsford.

The board said its short-term expectations are based on residential permits data while its long-term expectations are based on demographic requirements.

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Edmonton commercial real estate rebounds from `sluggish` 2009

EDMONTON — Realtors sold 161 Edmonton commercial properties worth $754 million in the first half of the year, says the mid-2010 national investment report released Monday by CB Richard Ellis.

That`s up from 120 deals worth $547 million in the first half of 2009, the real estate company says.

CB Richard Ellis (CBRE) says sales in both Edmonton and Calgary rebounded from "sluggish activity" in 2009.

Calgary`s first-half sales totalled more than $680 million in 188 transactions, up from $471 million in 149 transactions for the period in 2009.

But both Alberta cities are below the highs of the first half of 2007, when Edmonton had 167 sales worth $870 million and $2.9 billion in Calgary properties changed hands through 269 transactions.

Local private investors account for the majority of transactions so far this year; foreign investors had only a minor share, CBRE says.

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Enter the Oilsands

Sometimes analysts (and journalists) are boring. NAV this, EBITDA that, and other acronyms can put you to sleep. They are trying keep you free of investing sins, but it doesn`t always work.

But every now and again, a number-cruncher opens our eyes with a little joke, perhaps a pun, maybe an outright jab at a company, and especially April Fools gags.

Phil Skolnick, the Canaccord Genuity analyst who picked up coverage of the oil sands Monday, spit out a quirky headline that caught our attention. Oh, sure, it doesn`t make much sense, but we`ll take it.

The headline? "Sandbox: Enter Sandman." Perhaps we perked up because Metallica will do that to you in the morning. But enough of his nod to heavy metal; let`s talk heavy oil.

"We are expecting further new project sanctions, especially mining projects, which in our view will re-instill confidence in the viability of the oil sands," Mr. Skolnick said, trumpeting the sector in a research note.

"We see technological advancements being drivers of further economic improvement in in-situ projects; and we anticipate continued [mergers and acquisitions] activity due to heightened risks in other jurisdictions, particularly in the Gulf of Mexico, being coupled with the Canadian government`s continued welcoming of foreign investments."

The break-even price? He thinks it has dropped by US$15 to US$20 per barrel since the craziness of 2008, when inflation ruled the Fort McMurray. Steam-assisted gravity drainage projects can get away with prices between US$45 to US$50 per barrel, while mining operations, excluding upgraders, need oil to be at least US$60 per barrel.

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Most companies planning pay raises for employees

The prospects for a pay raise just got a little better for next year, a new survey shows.

Most organizations are planning to grant salary increases based on conservative budgets, Mercer Inc.`s annual look at Canadian compensation levels found.

In Calgary, the outlook was a little higher, with companies planning a 3.4 per cent increase in base salaries in 2011, bolstered by a rise in the oil and gas sector.

But on average in Alberta, firms are predicting a 2.9 per cent rise, on par with the national average.

That was up from a national average of 2.7 per cent in 2010, and two per cent the previous year.

The survey, released Wednesday by the Toronto-based human resources consultancy, is based on a survey of 600 companies of various sizes across Canada.

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Alberta wholesale sales sector sees increase

CALGARY - Alberta posted the largest monthly increase in wholesale sales in June, according to Statistics Canada.

The federal agency reported today that the province saw sales in the sector rise by 1.6 per cent to almost $5 billion from May. that followed a 1.2 per cent decline in May. June was up 7.3 per cent increase year-over-year.

At the national level, wholesale sales declined 0.3 per cent on a monthly basis to just under $44 billion, but were still up 7.7 per cent from June 2009.

"The largest decrease came in the machinery, equipment and supplies subsector, which fell 2.3 per cent to $8.9 billion in June. Declines were reported in all four industries in this subsector, with the other machinery, equipment and supplies industry (4.5 per cent) posting the largest drop," said Statistics Canada of the national numbers.

It said the building material and supplies subsector fell 2.0 per cent, posting its second monthly decrease since August 2009. All three of its component industries declined, with the largest decrease in metal service centres (4.9 per cent).

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Number of Calgarians on EI continues downward slide

CALGARY - The number of people receiving regular Employment Insurance benefits in the Calgary census metropolitan area fell for the third consecutive month in June, according to Statistics Canada.

The federal agency reported today that 14,630 people in the Calgary CMA received EI which was down 4,650 people from June 2009, a drop of 24.1 per cent.

In Alberta, there were 49,780 people receiving benefits in June, down 13,080 or 20.8 per cent on a year-over-year basis but up 310 people or 0.6 per cent from May.

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