Calgary is no stranger to a boom-and-bust economy and the impact each has on both businesses and families. The most recent bust has significantly affected Calgarians in every area, notably in the ability to sell their homes. Calgary’s real estate market over the past year has mirrored the economy: slow to rebound after enduring years of recession. While there are signs of improvement, the road to recovery is expected to be a long and bumpy one.
“It’s going to be a slow process of recovery,” says Ann-Marie Lurie, chief economist for CREB. “This recovery will feel really different. It’s going to take some time before prices are back to where they were, before we see more normal activity in the market, before we get rid of all this additional supply in the market.”
As in every business, success boils down to supply and demand. In Calgary, the real estate market is experiencing oversupply and low demand as economic uncertainty continues to be a factor for potential buyers. Inventories have been rising on both the resale and new home sides resulting in more homes on the market, homes remaining on the market for longer periods of time, and downward pressure on home prices.
“In September there were almost 2,100 units that were unsold in the market. That’s the highest inventories have been since we started collecting data in 1990,” says James Cuddy, senior analyst for CMHC.
While nearly half of the unsold inventory in Calgary consists of apartment and condominium units, semi-detached and row units are also at an all-time high at 14 per cent and 11 per cent of the inventory respectively. Single-family units make up the remaining approximately 25 per cent of listings. Across the region the sales-to-listing ratio sat as low as 41.5 per cent in September, giving potential buyers plenty of options.
Homebuyers are being cautious about purchasing for more reasons than just the weaker economy. Calgary’s unemployment rates have remained relatively high, hovering around eight per cent throughout the year, and the city hasn’t seen the job growth needed to stimulate the economy and ignite housing demand. On top of that, new rules on mortgage lending mandated a minimum qualifying rate for uninsured mortgages. Potential buyers are now required to meet a qualifying rate that is either the five-year benchmark rate published by the Bank of Canada or two percentage points above the mortgage holder’s contractual mortgage rate, whichever is greater. Today, those people looking to buy their first property or who are shopping around to renew an existing mortgage have to pass this stress test to show they will be able to afford their payments once interest rates inevitably rise again.
“The mortgage eligibility rules were a real problem. They [the OSFI] wanted to fix a problem in Vancouver and Toronto but it didn’t need to be a national implementation, which has had a negative effect here, in a market that was hit harder than anywhere else and is looking to recover from the recession,” says Guy Huntingford, CEO of BILD Calgary Region.
On top of the more stringent lending rules is the increasing benchmark lending rates, which were raised for the fifth time since last summer to 1.75 per cent in October. The Bank of Canada kept rate hikes at record lows for the past several years to stimulate the economy after the 2008 downturn, but more rate hikes are expected in 2019 as the Canadian economy continues to improve. These hikes further increased borrowing costs for potential homebuyers and in many cases delayed their entry into home ownership in 2018.
While it has been a sluggish market this year, 2019 is expected to improve gradually as the provincial and local economy improves. Developers are bullish about the market and continue to build in underserved areas while economic growth will eventually result in rebounding real estate prices and greater demand.
“We’ve had positive net migration but it hasn’t translated to ownership demands yet. As the rental market starts to fill, that slowly filters through the whole aspect of the market,” says Lurie.
Inter-provincial migration is trending up, with more than 11,000 people moving into the province this year. This influx will begin to absorb some of the excess inventory in the rental, resale and new home markets. In the meantime, challenges surrounding market access as well as diminished investment activity due to a volatile energy market will mean the real estate market will maintain a slow path to recovery in 2019.
“We expect that population growth and employment growth will grow modestly over 2019 and 2020, and this will help to absorb some of these [inventory] highs. But the caveat is it’s going to take time for the market to balance,” says Cuddy.
And real estate professionals are greeting 2019 with cautious optimism and patience to allow the market to do just that.