Economy weighs on Calgary’s housing market but demand fundamentals improving

Calgary’s housing market is continuing to negatively feel the impact of an economy that is still slowly recovering.

But housing demand fundamentals are generally improving throughout the city.

When oil prices began their collapse in the latter half of 2014, it led to two consecutive years of a recession in 2015 and 2016 and thousands of job losses – particularly in the high-paying oilpatch sector.  Employment and consumer confidence are big factors in the housing market.

And while the economy is bouncing back, it is still struggling, and that evidence is playing itself out in the real estate industry.

Ann-Marie Lurie, the Calgary Real Estate Board’s chief economist, says changes to the lending industry with tougher rules for mortgage applications, combined with a challenging economic recovery, are weighing heavily on the residential market these days.

She says supply levels of resale homes for sale have not adjusted to the weaker demand in the market.

“Slower sales do not come as a surprise, given the economy has not yet improved enough to offset the impact of changes in the lending industry,” says Lurie.

“While the rising inventories are being monitored, prices have remained relatively flat as gains in some areas of the city have been offset by declines in other areas.”

Ann-Marie Lurie, chief economist Calgary Real Estate Board

Here are the main and key statistics reported this week by CREB on the April resale housing market in the city:

  • MLS sales of 1,518 were down 20.11 per cent from a year ago;
  • Dollar volume of all sales of $726.5 million fell by 22.75 per cent;
  • New listings of 3,569 rose by 8.32 per cent;
  • Inventory of homes for sale at the end of the month rose by 32.73 per cent to 7,324;
  • The months of supply which measures how long it would take for all the inventory to sell based on current demand was up 66.13 per cent to 4.82 months;
  • The benchmark price which measures the sale of typical homes in the market increased by 0.21 per cent to $436,500;
  • The median sale price dropped by 3.15 per cent to $431,000; and
  • The average sale price was off by 3.31 per cent to $478,596.

Year-to-date until the end of April, here are some key numbers:

  • MLS sales are down 18.63 per cent from the same period a year ago to 4,937 transactions;
  • Dollar volume of $2.4 billion has dropped by 18.97 per cent;
  • New listings are up by 4.39 per cent to 11,876;
  • The benchmark price is up by 0.12 per cent to $434,675;
  • The median price is down by 1.61 per cent to $428,000; and
  • The average price has fallen by 0.43 per cent to $484,273.

So we know where the market has been for the past four months. Where is it going for the rest of the year?

A report by Scotiabank economists Adrienne Warren and Marc Desormeaux sheds some light on this.

The report, released earlier this week, says Calgary’s housing market recovery from the 2014 oil price shock and subsequent recession remains a slow slog.

“Looking past the volatility of recent months, sales have been trending largely sideways since early 2015 and remain below long-term averages. Home prices are stabilizing, evidence of growing confidence in the sustainability of the province’s economic recovery,” says the report, adding that housing demand fundamentals are generally improving with thousands of full-time jobs created in the past year and the unemployment rate falling.

Wages are rising and demographic trends also are becoming more favourable. Alberta witnessed a net inflow of migrants from other provinces in the latter half of 2017 for the first time since 2015, says the Scotiabank report, and net inflows are expected to remain positive, albeit modest relative to the 2012–14 annual average of over 30,000, amid the pickup in labour market demand. High levels of immigration are sustaining healthy household formation growth.

“Calgary’s population, even with the recent slowdown, continues to grow at almost a two per cent annual rate, and its age profile remains supportive of housing demand. In addition to an average age of 37.4, the lowest in the country in 2016, the 24.7 per cent share of Calgary’s population aged 25–39 years old, considered the prime home-buying age bracket, was the highest of any CMA,” it said.

Mortgage carrying costs for buyers of an average priced Calgary home absorb around 28 per cent of median household income, in line with its historical average, and well below the near-record levels of roughly 65 per cent and 50 per cent in Vancouver and Toronto, respectively, explained Scotiabank.

“We anticipate some erosion in affordability in 2018–19 as rising interest rates boost mortgage payments at a faster pace than income growth, but not to the extent that it becomes a major issue for many households. Overall, we forecast sales and prices to be little changed this year,” added the financial institution.

According to the bank, current prices, adjusted for inflation, show little deviation from their long-term trend.

“A decade of essentially stagnant real home prices appears to have removed any evidence of overvaluation built up during the 2005–07 housing boom when average inflation-adjusted prices soared over 80 per cent. Cumulative real home price gains in the lead-up to the 2014 oil shock were strong, but much more modest at 12 per cent. The share of Alberta mortgages in arrears three or more months peaked at 0.47 per cent in 2017-Q1 and has since edged lower to 0.45, well below the cycle high of 0.84 reached following the 2008–09 recession,” said Scotiabank.  

“Calgary’s relatively good housing affordability bestows a competitive advantage to businesses seeking to attract and retain key talent.”

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