Calgary’s housing market has bore the brunt of ongoing turbulence in the economy – yet none more so than the condo sector.
Once a haven for first-time buyers, downsizers and investors alike, these diminutive units have taken it on the chin like a St-Pierre super kick amid a perfect storm of oversupply, tougher lending rules and weak employment conditions.
“There’s just too much product based on the demand,” says Ann-Marie Lurie, chief economist at CREB, which represents more than 5,600 real estate professionals in the region. “Sales activity continues to fall, albeit not at the same pace as some of the other markets.”
Year-to-date sales at the end of September were down 5.6 per cent to 2,096 units, well below long-term averages. New listings declined over the same period slightly by 5.5 per cent, but active listings remained high and stayed on the market longer – up by more than 12 per cent to 64 days.
As a result, the year-to-date average benchmark price for apartments at the end of September was $257,578, 2.9 per cent below the same period in 2017 and 14 per cent below the peak.
“This is clearly a buyer’s market – and not just for apartments,” says Lurie. “You have an economy that’s still not doing well, employment pushing back up against eight per cent and changes in the lending environment. All of these are weighing on the real estate market.”
New mortgage rules that came into effect at the start of 2018 mean borrowers must now meet the Bank of Canada’s five-year benchmark rate, or their contractual rate, plus two percentage points to qualify for a mortgage.
“That’s having a massive impact on the real estate market, especially because incomes haven’t grown. We think this is one of the reasons sales are down across all product types,” says Lurie, adding, not surprisingly, Calgary’s rental vacancy rate has declined to under four per cent from 20-year highs set in 2017.
New condos represent more than one-third of all housing starts in the Calgary metropolitan area in 2018, up slightly from 2017, yet lower than the near peaks of 50 and 58 per cent seen in 2014 and 2008, respectively, according to Canada Mortgage and Housing Corp. (CMHC).
Meanwhile, the number of condo units under construction has decreased significantly since Calgary headed into the recession in 2014. As of August, it sat at just over 5,800 units, above long-term averages, yet still not at the peaks set during previous downturns.
James Cuddy, Calgary-based senior analyst of economics and market insights for CMHC, attributes the decline in the number of condo starts to lower demand from buyers. He adds completions are also down, which suggests condo builders are also adjusting to the current reality.
“Some of the units that were under construction are taking longer to get to the completion stage, which I see as a sign that builders are slowing down due to market conditions,” he says. “They are taking longer to complete these units.”
The reason why? Builders don’t want them to sit empty, suggests Cuddy. At the end of this past summer, the number of units sold upon completion was down – only 57 per cent of completed multi-family units, which includes condos, were sold. The historical average trends around 85 per cent.
“Especially within the last months, the number of absorptions at completion was relatively low, which is a good indication demand is low for a given amount of supply,” he says. “And that absolutely puts downward pressure on prices.”
Cuddy also points to economic conditions behind new condo activity. He, like Lurie, notes the unemployment rate in Calgary ticked up to 8.2 per cent in August, which is well above the provincial average. He also points out that the number of Calgarians between the ages of 25 and 34 continues to decline.
“These individuals are first-time buyers, and will generally look at condos as ways to enter the market. The fact this segment of the population has recently started to trend downwards has implications on the demand for condos,” he says.
Despite these adverse conditions, Qualex-Landmark vice-present of sales Jordan Beach says his company’s Park Point tower in the city’s beltline district has seen sustained buyer interest since it broke ground over three years ago.
Construction on the 34-storey skyscraper was completed in August, and Beach says almost all its buyers have already taken possession. He estimates only 15 per cent of the 289 condos in the building are still available for purchase.
“We have closed over 90 per cent of the units that have sold since the launch,” says Beach.
While he admits tougher lending rules are challenging some condo buyers, he feels home prices in Alberta are still relatively low compared to other major Canadian cities, making affordability for young or first-time buyers less of an issue.
“Condos certainly seem like a better alternative financing-wise, so we are still seein