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The Population Rebound

The year so far and what lies ahead in 2019

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Calgary’s real estate market has always been a reliable indicator of the local economy. However, this year, according to the Calgary Real Estate Board’s 2018 Mid-Year Forecast, there is a bit of an anomaly between Alberta’s rebounding economy and the recovery of the local real estate market.

The report shows that, by the numbers, Alberta had the fastest growing economy in 2017 – employment has started to improve and recent net migration numbers are encouraging.

But, for various reasons, the real estate market recovery does not seem as brisk as some have hoped and expected.

According to Ann-Marie Lurie, CREB’s knowledgeable chief economist, the Calgary economy has not yet reached the levels of pre-recession activity. In addition, job growth opportunities have shifted and employment gains have not occurred in traditional sectors.

The CREB numbers also show that higher lending rates and stricter qualifications are preventing some first-time buyers from transitioning to the ownership market, while also impacting the ability of existing homeowners to move up to a higher price point.

The roller-coaster that is the Calgary real estate market is affected by various key factors like consumer confidence, the (not so new) Canadian mortgage rules, affordability, migration, and supply and demand.

The CREB report, which tracks MLS listings and sales, has crunched numbers to explain that Calgary home sales have eased more than anticipated in the first half of 2018, as economic conditions did not improve enough to offset changes in the lending market. The report shows that while inventories did rise, the oversupply resulted in downward pressure on pricing across all product types.

For this second half of the year, CREB expects the economic recovery to gain further traction, helping to limit the pull back in demand, but still cautions that it is

unlikely to be enough to offset the declines from the first portion of the year.

The guesstimates indicate that total Calgary MLS sales activity will likely decline by 9.7 per cent (to 17,047 units), a downward revision from CREB’s previous forecasted levels.

Prices are expected to ease by 1.17 per cent across the city, with expected declines ranging from 2.5 per cent in the apartment sector to nearly one per cent in the detached sector.

“It has been an interesting year for the Calgary home market,” says Trent Edwards, COO for Alberta with Brookfield Residential Properties. “Some segments are flourishing even with the new rate changes and there is continued economic uncertainty. Calgary’s multi-family new home market increased by 28 per cent in the second quarter of 2018 and the luxury home market has seen an uptick as well.

“Due to the stress test, sales are down by 13 per cent, year-over-year, but quarter-to-quarter sales have increased. We have also noticed a consumer confidence increase and more traction in the market over the past four months.”

When it comes to the real estate market, as with most aspects of Calgary’s recovery, it likely is not happening as fast as many would like to see.

“It will take a while for consumers to adjust to the rate of economic recovery and new mortgage rules,” he adds. “Once people have had an opportunity to re-evaluate what is feasible, we will start to see them enter the market.”

Shane Wenzel, president of Shane Homes, is realistic. “There’s no doubt about it: 2018 has been a challenging year. The Calgary and Alberta economy may be recovering but it’s still very slow. Investment into the city and province have to improve before this cycle can accelerate. Until then consumers are cautious.

“Homebuyers have had challenges over the last year with qualifying under new mortgage rules set out by Ottawa. I think regional solutions would have been better to counteract some out-of-control markets in Canada. Hopefully, after a short period of time, these conditions will be relaxed as confidence is still shaky in our marketplace.”

Lurie notes, “Two years of recession left us with excess supply in all aspects of the housing market. And consumer confidence continues to be impacted by concerns about Alberta’s prospects and how much more this circumstance could influence housing prices, particularly now with elevated inventories.”

Tracking the second half of the year, she points out Calgary’s rebounding migration and population growth stats are gradual but encouraging positives. “It’s actually turning out to be a positive surprise. Last year, the bleak migration forecast was for around 2,000 migrants. It turned out to be 11,000. That’s nowhere near the numbers Calgary used to have but it’s definitely an improvement. Let’s just say we’re cautiously optimistic about next year.”

Many homebuilders and area real estate professionals agree that any detailed analysis and the forecasting of Calgary’s real estate market gets a bit murky when it comes to the impact on actual 2018 real estate numbers and the trending for 2019.

While essentials like consumer confidence, migration and the economy continue as crucial real estate market variables, Calgary housing starts and resales are much influenced by the vital real estate factor of affordability.

Edwards emphasizes, “Affordability is always top of mind for our industry. There is no growth without affordability. Our goal is to work with the city to maintain affordability and choice for consumers, so people can live where they want and love where they live.

“A focus on maintaining affordability for consumers is key, especially with a challenging economy. Calgary city council recently approved the development of 14 new communities, meaning more jobs in construction and retail, and better choice and affordability for consumers.”

Wenzel underscores that the “affordability factor” goes beyond prices and market values. “Affordability is always important to the consumer, especially when qualifying is a challenge. Alberta incomes aren’t rising and if the consumer can’t qualify for what they want in a home then they tend to stay where they’re at. Like any market, consumer spending has to happen or we stagnate economically.”

Lurie cautions against expecting an overly gung-ho Calgary real estate market recovery. “There is excess supply in the market. The pattern has been that sales have come down while inventories have risen. It causes prices to trend down.

“Before prices can recover, the market must get rid of excess supply. Time will tell how long it takes Calgary to get closer to a balanced supply/demand market.”

Despite all the professional strategizing and forecasting, ultimately it comes down to the consumer.

“We expect the mood for 2019 will be similar to 2018,” Edwards guesstimates according to real estate numbers and trends. “It’s evident that consumer confidence is increasing as net migration increases, the economy begins to stabilize and more developments are approved. Next year will see more product choice for consumers at different price points which will also help spark activity.

“Along with buyers getting more comfortable with the economic conditions and the continuation of stable economic growth, there will be two very important elections at the federal and provincial level, as well as positive news coming out of the oil and gas sector,” he points out.

Wenzel shares the realistic optimism. “I see a little more light at the end of the tunnel in 2019. Municipally, we seem to have a very pro-business council which is great for economic recovery. We also have a provincial election on the horizon and think we’ll see some changes in the status quo. That may spark some more confidence no matter the outcome, and improve our economy at a more accelerated pace.”

“Our economy and industry are resilient,” Edwards notes with enthusiasm, “and we are confident that with all of the positive events happening, next year will be positive for Calgary’s real estate market and consumers.”

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