Lack of inventory driving Calgary house prices higher

The biggest news in the housing market these days is the critically low supply of homes.

It’s an issue that all levels of government are now addressing as demand for everything from rentals to homeownership continues to surge in Calgary and across the country.

The resale housing market has been dealing with a severe lack of inventory for quite some time now and the situation doesn’t appear to be easing. It’s a classic example of Economics 101 right now in Calgary. Demand is high, supply is low and prices are rising.

As of September 20, according to the Calgary Real Estate Board, the average MLS sale price of a property in Calgary so far during the month was $546,874 which has risen by 7.46 per cent from the same period a year ago. The median price has jumped by 7.45 per cent to $505,000.

Here’s why that’s happening. 

So far this month, there have been 1,572 MLS sales, up 29.38 per cent from a year ago. Meanwhile, new listings have increased by 19.78 per cent to 2,095. The number of active listings at 3,435 is down 27.65 per cent from last year. In September of 2021, the active listings were a healthy 6,032.

One of the key indicators of a housing market anywhere is the months of supply measure. Basically, it determines how many months the inventory would all be sold given the current demand. In Calgary at the end of August, it sat at 1.19 months. That’s down a whopping 46.9 per cent year-over-year. Extremely low. And it’s an indication that there just aren’t enough homes on the market right now for the increasing demand in the city.

At the end of August, inventory levels had dropped to 3,254 units, not only a record low for the month but well below the 6,000 units that are typically available. 

“The challenge has been the availability of supply, especially in the detached market. Inventory levels hit record lows in August, and while new listings are higher than last year, conditions continue to favour the seller, driving further price gains,” said Ann-Marie Lurie, CREB’s Chief Economist

In a recent report, Lurie said the prevailing shortage in supply has contributed to the continuation of tight market conditions, which has led to stronger-than-expected price growth across all property types in the city. This steady appreciation in prices throughout the year has effectively offset declines observed in the latter half of 2022, ultimately resulting in new record-high prices.

“Home prices have exceeded our expectations as supply challenges have persisted throughout the spring market,” she said. “While the pace of monthly gains is expected to slow in the second half of the year, limited supply choice is expected to keep prices elevated throughout the second half of the year.”

In a blog last year, RE/MAX Canada identified the critical issue facing the Canadian housing market.

“There is no other way to sugar-coat what is happening in Canada’s housing market: The nation is facing a severe supply shortage. Why is housing supply so low?

“Current market conditions, be it record-low inventories or strengthening demand, have sparked a housing affordability crisis. With interest rates on the rise and an inevitable increase in the mortgage stress test, buying a home within typical Canadian incomes and budgets will become more difficult this year, and potentially into the foreseeable future.”

RE/MAX outlined five main reasons housing supply is low:

  1. Pandemic Changed Consumer Trends: The COVID-19 public health crisis might have permanently altered how or why people purchase residential properties. The coronavirus pandemic led many families to buy larger spaces to accommodate working and studying remotely, and spending more time in a busy home. Many households also ditched the big cities, selling their homes at a substantial profit and moving to smaller towns and rural communities, absorbing limited inventory of affordable three-bedroom homes. With exceptional equity on hand and favourable mortgage rates, these “move-over” homebuyers could – and did! – outbid their rivals;
  2. New Home Construction Activity Slumped: “For more than a decade, single-family housing units completed have been below the 50-year average. Construction activity has been subdued since hitting a peak in 2006, although it is gradually on the rise again. It might be surprising to learn that Canada maintained an oversupply of homes on the market, which led to a crash in home valuations during the Great Recession in 2008. What a difference a few years can make;
  3. Housing Starts Not Keeping Up
  4. Not Enough Active Listings:  Active listings are below five- and 10-year averages. This is prevalent throughout many real estate industries, affirming that two-thirds of the country’s housing markets are tilted in favour of sellers. Indeed, prospective homeowners are scooping up any residential property they can find, leading to bidding wars and elevated prices;
  5. Zoning Laws in Major Urban Centres: Zoning laws have been restrictive and, according to the Ontario government’s Housing Affordability Task Force, “exclusive” in many parts of the provincial real estate market. This zoning law prohibits the construction of triplexes, townhomes and lowrise apartment buildings in many residential neighbourhoods, which is common in other parts of the country. 

As the population continues to grow through natural means and through immigration, the lack of inventory will continue to be a key aspect of the overall housing market.

(Mario Toneguzzi is a veteran of the media industry for more than 40 years and named in 2021 a Top Ten Business Journalist in the world and only Canadian)