It was another challenging year for the homebuilding industry in Calgary in 2018.
The single-detached part of the market was particularly hit by the economic headwinds the city faced in the past year – a sluggish economy, uncertainty for the oilpatch regarding market access for its commodity, and struggling consumer and business confidence.
According to Canada Mortgage and Housing Corporation, the number of housing starts for single-detached homes in the Calgary census metropolitan area fell by 14 per cent year-over-year in 2018 to 3,791 units. All other housing categories – including apartments/condos, row, duplexes and townhomes – actually saw an annual increase of one per cent to 7,180.
James Cuddy, senior analyst with the CMHC in Calgary, said the single-detached market in the Calgary region took a hit in 2018 due to affordability pressures that came into play during the year.
“We know that unemployment rates are going to be elevated. We know that interest rates have risen recently. So this has really put pressure on affordability in the market and it’s perhaps moved buyers towards more affordable options that aren’t found in the single market.
“In terms of inventory right now, we’re continuing to see the trend where singles are rising and pretty much all other segments of the market, except for apartments. Apartments generally being the more affordable options are the only segment where we’re seeing some downward trending in terms of inventory.”
Bryan Logel, a realtor with RE/MAX Real Estate (Central), also works selling new condos for builders and developers and is currently working with Brad Remington on the My Legacy Park and Sage Hill Park multi-family projects.
“There’s a huge push for affordability. Affordability has become super critical because of the economy. And literally our sweet spot has moved. It’s a super clear movement and it’s a combination of the current economy in Calgary and it’s also this slow recovery. And it’s also the mortgage changes. These mortgage changes have brought more people to this product I’m marketing – $149,000 to $259,000,” said Logel.
“The builders have adjusted faster than the resale . . . We have the advantage of seeing the marketplace and saying ‘hey this is where the market needs to be, based on the majority of people and what they can afford’. So we can design that sweet spot.”
Logel said that in a changing market that ability is super critical for builders.
So with the current dynamics in place for the Calgary real estate market, what would it take to change the direction of single-detached new home construction?
“I think fundamentally for the singles market, it’s all going to be a function of economic growth in Calgary,” explained Cuddy. “Unemployment rates are high. So bringing down unemployment. Increasing employment. But also population growth. Simply having more people migrate here. All of these key fundamental drivers – population and the labour market – will ultimately help see housing demand more for the singles market.”
The new home market has played a role as well in the existing home market in the city. According to the Calgary Real Estate Board, MLS sales in 2018 fell by 14.51 per cent year-over-year in 2018 to 16,144 transactions. Also, the inventory of homes for sale at the end of December was 4,904, which was up 13.47 per cent from December 2017. The benchmark price – which is the price of a typical home in the Calgary market – fell by 1.52 per cent year-over-year to $431,375.
Cuddy said there is definitely competition between the new home market and the existing home market and elevated inventory levels in both markets puts additional pressure on the gap between supply and demand in the overall real estate market in the city.
“That will ultimately put downward pressure on prices,” he said.