The challenging economic climate in Calgary is expected to persist into 2019 and that will continue to weigh heavily on the city’s resale housing market, according to the Calgary Real Estate Board’s annual forecast.
The forecast is calling for MLS sales in the city to dip to 15,882 this year which is down from 16,144 transactions in 2018. As an example of how much demand has fallen in the market in the past couple of years, MLS sales in Calgary reached 18,884 in 2017.
Lower demand coupled with an elevated inventory of homes for sale naturally will continue to impact prices. CREB is forecasting an overall year-over-year decline of 2.34 per cent this year in prices for homes that are sold.
Broken down that includes decreases of 2.27 per cent for the apartment sector, 2.49 per cent for attached homes, and 2.33 per cent for detached homes.
The current economic forces in play in Calgary are affecting the level of demand in the city.
“While there was some evidence of stabilization in the energy sector in early 2018, issues surrounding the price differential of oil, falling global prices, a lack of market access and ability to attract investment are placing current and future growth at risk. The economic impact of recent events is not expected to translate into another recession in 2019. However, it will impact employment opportunities, consumer confidence and the housing market,” says CREB’s economic and housing outlook report for this year which is authored by the board’s chief economist Ann-Marie Lurie.
“On top of energy sector concerns, we are in an environment of stricter lending conditions and higher interest rates. The Canadian economy is growing, supporting further expected gains in interest rates in 2019. Higher rates and stricter requirements come at a time when the Alberta economy still struggles with employment and wages. With further rate increases expected in the second half of 2019 and no significant improvements in the job market, resale sales activity is forecasted to remain low compared to historical standards.”
Lurie says persistently weak demand and excess supply in the Calgary market are expected to cause further price declines in 2019. There are signs that supply in the market is starting to adjust to slower sales, but the pace of adjustment is expected to be slow. Overall, it will help reduce some oversupply in the market and put the industry in a more stable position by 2020, she adds.
“If conditions in the energy sector get worse, this could have downside risk on confidence, employment and wages, creating persistent oversupply and steeper-than-expected price declines in the housing market. Signs of supply adjustments are present in the market. If the downside risk is averted, then the amount of oversupply should start to ease by the end of the year. Unless the Canadian economy underperforms, further rate increases are expected in 2019. This will impact housing demand,” explains Lurie’s report.
“If new-home inventories and product under construction do not ease, this will prolong buyers’ market conditions in the housing market. Provincial and federal elections could result in changes to government spending, policies and confidence in the market. For those considering ownership, further resale price declines can make the resale market more attractive to purchasers compared to new homes.”
Last year was not an easy one for the Calgary housing market. There was hope that weakness in the first half of the year would improve by the second half with a boost from a recovering economy and labour market. But that didn’t happen.
Job losses persisted and confidence in the housing market waned due to all the economic challenges still out there.
“The result was a steep decline in sales activity and a persistently oversupplied market. With too much supply, prices slid further in 2018, erasing any progress made towards recovery in 2017,” says Lurie’s report. “Much of the concern plaguing the market in 2018 will continue this year. Weakness in the labour market will persist throughout 2019, further weighing on demand. However, there are signs that supply is adjusting. If this trend continues, by the end of 2019, oversupply in the housing market should ease and the rate of price declines should slow.
“The market is expected to move towards more balanced conditions, but the transition will likely take most of the year.”