Calgary housing market risk of vulnerability rated “moderate”

Calgary’s overall real estate market continues to be fairly stable with only a “moderate” degree of vulnerability, according to a report by Canada Mortgage and Housing Corporation.

The federal agency regularly assesses markets across Canada considering four main factors that may provide an early indication of vulnerability in the housing market: (1) overheating when demand outpaces supply in the existing home market; (2) sustained acceleration in house prices meaning that the rate of increase in prices is itself increasing; (3) overvaluation of house prices in comparison to levels that can be supported by housing market fundamentals; and, (4) overbuilding when the inventory of available housing units is elevated.

“While overbuilding continues to persist, there are some signs of support in the market. New listings and new home production levels are generally moving lower and more affordable options in the market have been experiencing demand growth. These trends help put the market on a path toward balance, however it will take time as inventories remain elevated,” says James Cuddy, senior market analyst for the CMHC in Calgary.

The CMHC’s Housing Market Assessment Framework detected a moderate degree of vulnerability in the overall assessment for Calgary. It says evidence of overbuilding remained moderate as new home absorptions continued to decrease at a faster rate than completions, keeping inventories elevated. Although the economic recovery remains slow in Calgary, the decline in house prices has kept valuations in line with economic fundamentals.

“CMHC’s HMA framework continued to detect low evidence of overheating in Calgary in the fourth quarter of 2018. While Calgary continues to deal with a housing supply and demand imbalance created from the 2014 oil price shock and recent slow economic recovery, there have been some signs of support in the market,” says the report.

“New listings and new home production levels are generally slowing down as market participants adjust to lower demand. At the same time, more affordable options in the market are experiencing demand growth.”

The federal agency also says there is low evidence of price acceleration as downward pressure on house prices continues due to persisting buyers’ market conditions that kept the price acceleration indicator at low.

There also continued to be low evidence of overvaluation in Calgary.

“Although Calgary continues to struggle with weak economic fundamentals, such as a high unemployment rate and a lack of growth in real personal disposable income, the decline in house prices has kept valuations in line with predicted levels,” explains the CMHC.

But the key indicator that has kept the housing market from being classified as having a low degree of vulnerability is the fact that moderate evidence of overbuilding in Calgary continued to persist.

“Builders are generally slowing down production in the ownership market, however new home sales continued to decrease at a faster rate, keeping inventories elevated. The exception was condominium apartments, where inventories have been trending downwards since their peak in December 2017. Prospective buyers in Calgary face a number of demand headwinds, such as a high unemployment rate, a lack of growth in real personal disposable income, and higher interest rates, which has prompted buyers to seek more affordable options in the market,” says the CMHC.

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