Rising interest rates and tougher mortgage rules hit Calgary resale housing market

Rising mortgage rates and new stricter rules surrounding mortgage applications are having a great impact these days on real estate markets across Canada.

And Calgary is no exception.

In May, MLS sales in the city fell significantly compared with a year ago while the inventory of homes for sale rose at a prominent rate.

Naturally, the dynamics of supply and demand took hold in the local market as prices declined.

“The impact of rising lending rates and stricter qualification levels is causing demand to ease across all product types,” says Ann-Marie Lurie, chief economist with the Calgary Real Estate Board.

“Economic conditions have improved compared to several years ago, but the pace of economic recovery has not been enough to outweigh the changes in lending conditions.”

Ann-Marie Lurie, chief economist Calgary Real Estate Board

Gregory Klump, chief economist with the Canadian Real Estate Association, says this year’s new stress test has lowered sales activity and destabilized market balance for housing markets in Alberta, Saskatchewan and Newfoundland & Labrador.

“This is exactly the type of collateral damage that CREA warned the government about. As provinces whose economic prospects have faced difficulties because they are closely tied to those of natural resources, it is puzzling that the government would describe the effect of its new policy as intended consequences,” says Klump.

But the consequences of those mortgage rule changes are very clear.

Here’s the raw numbers as reported recently by CREB on the May monthly MLS stats:

  • Sales of 1,726 were down 18.39 per cent from the previous year;
  • Total sales volume of $841.7 million fell by 21.07 per cent;
  • New listings of 4,368 rose by 13.04 per cent;
  • Inventory of homes for sale at the end of the month was up a whopping 36.01 per cent to 8,450;
  • Months of supply, which is the amount of time to sell the inventory with the current demand, rose by 66.66 per cent to 4.9 months;
  • The sales-to-new-listings ratio fell by 15.22 per cent to 39.51 per cent;
  • The sales-to-list price ratio dropped by 0.47 per cent to 97.25 per cent;
  • Average days on the market to sell a home rose to 46 from 37 a year ago, representing a hike of 23.66 per cent;
  • The benchmark price, which tracks the average price of a typical home on the market, declined by 0.55 per cent to $436,900;
  • The median price of $427,250 was down 4.63 per cent; and
  • The average sale price of $487,665 decreased by 3.29 per cent.

CREB says MLS sales in May were 24 per cent below longer-term averages and sales activity in the detached sector declined to levels not seen in over a decade.

The detached market saw sales last month fall by 23 per cent year-over-year to 1,058.

“The changes in the lending market are preventing some people from moving up in the market. Uncertainty has also caused others to wait on making changes to their housing situation,” says Tom Westcott, CREB’s president.“However, there are pockets of the market that have not seen the same supply increase. It makes it so important to understand the dynamics of your community.”

Todd Hirsch, chief economist with ATB Financial, says Calgary’s resale housing market is characterized these days by growing supply “coupled with flat demand.”

“Normally we would be seeing demand picking up in Calgary at this point because the economy is improving, jobs are slowly coming back and confidence is returning. And all of those things are positive but they’re being counter balanced by higher mortgage rates and also that mortgage reset in January,” says Hirsch, adding that the market is experiencing “bumpy” results right now because of that.

Todd Hirsch, chief economist at ATB Financial

“I’m still expecting the impact of the mortgage reset to sort of work its way out. In other words, there was a big rush I think towards the end of 2017 to get into the market and then predictably things fell as that mortgage reset kicks in. But that’s not going to happen continuously. That kind of falls out as a factor as we get into the second half of 2018. We’re also expecting the economy to gradually continue to build some momentum. That will be positive. But we’re going to have to see what the Bank of Canada is going to do and what mortgage rates are going to do.

“We’re expecting the Bank of Canada to raise rates next month in July but the mortgage market is really priced off the five-year bond market but they typically move in the same direction. So six months from now we’re expecting mortgage rates to be probably between 25 to 75 basis points higher. Somewhere in that neighbourhood. That again counter balances the stronger gradually strengthening economy. So overall 2018 is looking to be kind of a flat year but I’m still guessing on balance it will end the year slightly positive.”


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