Record results from 2005's sizzling real estate scene in Edmonton are putting a damper on forecasts for 2006.

Projections for this year are still strong, analysts say. However, a hot market last year means some numbers will actually show declines despite robust provincial economic growth that is expected to continue for years to come.

Officials with the Greater Edmonton Home Builders' Association (GEHBA) say single-family home starts this year will still be high, even though they'll actually decline by three per cent to 7,397 from a record 7, 623 set in 2005.

In comparison, Richard Goatcher, a senior market analyst for Canada Mortgage and Housing Corp. (CMHC) in Edmonton, is calling for 7,100 single-family housing starts this year.

Goatcher told a recent Edmonton Real Estate Board (EREB) seminar that even with the lower numbers forecast for 2006, the CMHC's projected 7,100 single-family starts will still be the second-best scenario Edmonton has ever seen.

The lower numbers are the result of an overheated market, says newly elected EREB president Madeline Sarafinchan.

"Home construction has peaked as builders reach capacity," says Sarafinchan, though she adds in-migration will push up the demand for new housing.

"There will be upward pressure on housing prices in 2006 as inventory becomes tighter. In December, the (Edmonton) MLS inventory was down 1,000 units from the same time in the previous year," she adds.

And it's not just resale housing prices that are expected to rise in 2006; new single-family homes will also see price hikes.

Goatcher is calling for new single-family home prices to come in at an average price of $295,000 in 2006, compared to $268,500 in 2005 and $242,175 in 2004.

On the resale market, he sees the average single-family home price increasing to $234,000 in 2006, up from $220,347 last year and $201,622 in 2004.

The EREB's price predictions for the resale market are a bit higher.

"The price of single-family dwellings is expected to rise about eight per cent this year and they will sell for an average of $238,000 to $240,000. The average price in 2005 was just over $220,000," says Sarafinchan.

In the condominium resale market, prices are expected to go up by six per cent, the EREB president says, attributing this figure to an oversupply in the market. Condo prices went up 4.9 per cent in 2005 for an average of $141,000, the EREB says, and it projects that in 2006 the average could reach $149,000.

Goatcher says demand is very strong in the new condo market, pointing to the lower price to home ownership as the reason why the market is attractive, especially when compared to the higher priced single-family product.

Overall, the EREB expects its members to sell 17,700 residential properties in 2006, five per cent less than in 2005, primarily due to a lack of inventory.

But higher prices are expected to mean another record-breaking year for total sales value. Property valued at more than $4.25 billion was sold though the Edmonton MLS in 2005 and the board believes sales will surpass that figure this year.

Meanwhile, real estate agents in attendance were told not to worry too much about projected interest or mortgage rate hikes.

Capital City Savings and Credit Union CFO Ian Glassford says the prime rate is expected to rise by just one per cent this year, to six per cent. Glassford is predicting a one-quarter-per-cent increase on Jan. 25, another one-quarter per cent on March 8, followed by a third hike, again by a quarter of a per cent, on April 26, and then possibly one or two more quarter-point increases before the year is done.

Glassford doesn't see much action on mortgage rates, noting the five-year mortgage rate could rise by one-half or three-quarters of a per cent in the later part of the year, if it does go up at all.

As to why the prime rate is expected to move up more than mortgage rates, Glassford says "bond markets in Canada and pretty much around the world are convinced that inflation is dead."

He also says that there is a realization that if rates went up by three to four per cent, it would spark a recession that no one wants.

Nor does Glassford necessarily see doom and gloom ahead on the economic horizon. "We don't think so, the story is still intact," he says, pointing to good employment, strong consumer spending, reasonable global growth and low inflation.

That could change though, he says, should consumers stop spending, if the Canadian dollar sharply appreciates in value, if foreign investors lose interest in U.S. investments or if too many world economies heat up at the same time.

Tale of Two Cities

A look at some of the differences in real-estate market activity in Edmonton and Calgary in 2005, both of which had record-breaking years.

* Seven homes in Edmonton and one in St. Albert sold through the MLS for more than $1 million. There were 144 homes in that price range sold in Calgary.

* The highest-priced home in Edmonton was in Crestwood and sold in May for $2.1 million. The highest residential sale in Calgary was a 39-acre lot with a 2,000-sq.-ft. home, which sold in April for $4.5 million.

* There were 158 homes in Edmonton that sold for more than $500,000 compared to 1,199 sold in Calgary in 2005. At the other end of the price scale, there were 1,063 homes that sold for less than $100,000 in Edmonton and just 308 in Calgary.

* The biggest home sold in Edmonton in 2005 was a 7,983-sq.-ft. home in Quesnell Heights, which sold for $1.6 million. In Calgary, a more compact 7,342-sq.-ft. home on Elbow Drive sold for $1.8 million.

Source: Edmonton Real Estate Board

(Laura Severs can be reached at laura@businessedge.ca)