Move-up homebuyers are driving continued strong demand for residential properties across the country including Calgary, according to a report by RE/MAX Canada.
The RE/MAX Canada Move-Up Market Report found that buyers took advantage of the Bank of Canada’s (BoC) temporary pause in overnight rate hikes in the second quarter of the year, sparking a flurry of activity in the mid- to upper-price ranges. Single-digit price upswings were noted in Greater Vancouver, Calgary, Ottawa and Halifax as sellers held on to properties that fell short of peak price levels reported one year ago.
“January pretty much marked the trough for residential activity in markets across the country, as sales and prices reached new lows. When the BoC signaled its intent to hold on further interest rate hikes, the floodgates opened, sending buyers into the market from coast to coast,” said Christopher Alexander, President of RE/MAX Canada.
“Inventory challenges re-emerged in most major centres as demand once again outpaced supply. Quality listings were quickly snapped up, many moving in multiple-offer situations, which served to draw more sellers into the market in April. By May, the market was moving full speed ahead until the BoC announced its decision to raise the overnight rate in June and again in July, taking the wind out of the proverbial sails of most markets, with some exceptions, namely Calgary, Regina and Montreal.”
The report said fear of further rate hikes continues to impact the market psyche, with many move-up buyers hoping to get into the market before rates climb again. RE/MAX brokers noted increased urgency in the market as buyers sought to obtain pre-approvals with guaranteed rate holds in place for a 120-day period, prior to both the BoC’s June and July announcements.
Equity gains also factored into Canadians’ decision to move up to larger homes or more preferable neighbourhoods, despite the pandemic-induced rise and fall of real estate value. This was especially true in central and eastern Canada. With trade-up activity traditionally occurring within four to seven years of the initial home purchase, RE/MAX examined pricing in June 2018 compared to June 2023 and found that almost every market reported a significant upswing in value over the five-year period.
“While the threat of further interest rate hikes has given some pause to the market, particularly at entry-level price points, robust equity gains over the past five-year period provided the means and confidence to fuel solid buyer intentions in move-up markets across the country,” said Alexander.
The report said necessity was the primary factor driving demand throughout the first half of 2023. Whether it was a growing family, the need for more space to accommodate new work-from-home arrangements and schedules, or a better school district, quality-of-life considerations were central to purchasing decisions. This proved true regardless of the move being made – whether downsizing or simplifying in more walkable neighbourhoods closer to the core, trading up or making lateral moves, urban or suburban, added RE/MAX.
“Inevitably, periods of contraction and short-term restraint ultimately give rise to increased pent-up demand,” said Elton Ash, Executive Vice President, RE/MAX Canada. “You can only hold back the impetus for so long. Real estate, after all, is driven largely by lifecycle events and broader factors such as population growth. While some will adjust their timing, most purchasers will eventually move forward, and we’ve seen that pattern emerge time and time again as move-up buyers nationwide re-ignite demand and competition for a limited number of listings.”
With July’s 0.25 basis point rate hike, the BoC’s key rate now sits at five per cent, and homebuyer activity is expected to slow heading through the summer months in most major Canadian housing markets. However, once it’s clear that the Bank of Canada is nearing the end of quantitative tightening and rates start to unwind, demand for housing will likely ramp up yet again. With uncertainty around financing out of the equation, the focus should remain squarely on supply again. In the move-up market and across the board, that will translate to renewed upward pressure on pricing, said RE/MAX.
“One simply cannot understate the serious repercussions the housing shortage will continue to have on Canadian real estate and affordability,” said Alexander. “In the short term, while the BoC’s movements may clamp down on housing demand, especially at lower price points, we expect they will have unintended consequences, serving as a temporary dam causing pent-up demand to build and new home construction to contract. When the BoC decides to finally relax quantitative measures and the dam bursts, housing supply will fall even shorter amid record population growth.”
Here’s what the report had to say specifically about the Calgary market at the mid-point of the year:
While housing sales remain more than 20 per cent off last year’s torrid pace, activity has been exceptionally robust in the first half of the year in Calgary. Inventory shortages across all housing types and price ranges have created a competitive marketplace, with one in every three homes now sold in a multiple offer situation. Lack of supply has impacted sales figures, with inventory down almost 30 per cent compared to last year. According to the Calgary Real Estate Board, more than 14,300 homes have sold year-to-date, down from 18,687 during the same period in 2022. Year-to-date average price now hovers at $539,668, close to two per cent ahead of the $529,826 reported one year ago, making Calgary one of the only markets in the country where average price now exceeds 2022 levels. Strong economic fundamentals and affordability are behind the push for housing in Calgary. Values are amongst the lowest in major Canadian centres. During the pandemic, the province saw a significant upswing in in-migration as affordable housing and job opportunities attracted buyers from other provinces, including British Columbia and Ontario. That trend has continued in 2023 as buyers from other provinces seek to realize homeownership.
Move-up activity is strong in the city, with the greatest demand occurring between $500,000 and $700,000. Listings remain scarce as existing homeowners are reluctant to sell for fear of not being able to find a new home and/or get back into the market. Buyers have subsequently expanded their search perimeters to ensure that any two-storey home with a double-attached garage is considered, whether it’s in the north or south, east or west end of the city. Frustration is building with every lost bid. The latest of the Bank of Canada rate hikes, intended to quell activity, only served to drive more buyers into the market, many concerned that housing values will rise beyond their reach. Supply constraints are expected to be the greatest challenge facing buyers heading into the second half of the year when available listings typically decline. At the current rate, unit sales in Calgary are forecast to match or exceed year-ago levels, while average price pulls ahead.
(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)