The Calgary residential real estate market is showing steady and positive signs of a gradual recovery, although some segments still struggle, battered by the lingering toll of the perfect storm.
The Calgary economy. Employment. The ripple effects of energy sector flux. Migration. Shaky consumer confidence. Resale listings/sales ratios. New home builders continue to strategize while dealing with elevated levels of completed and unabsorbed new home inventory. And the controversial, not-so-new B-20 stress test mortgage rule that came into effect at the beginning of 2018, requiring all buyers to qualify at the greater of the Bank of Canada’s five-year benchmark rate (the contracted rate plus two per cent). All are causing some prospective Calgary buyers to reconsider their housing price range while putting some properties out of reach.
Borrowing from the popular U.S. political phrase “It’s the economy, stupid!” analysts and industry experts explain that, despite the various factors that impact the performance of Calgary’s real estate market, all trending and flow chart tracking boils down to the economy.
“The sharp rise in interest rates in 2018 hurt all markets across the country in terms of home sales and starts,” says Peter Norman, vice-president and chief economist of research, valuation and advisory at Altus Group. “But Calgary got hit harder by it because it was just coming out of a rather lengthy recession.”
He adds the positive Calgary momentum is encouraging. “The Calgary economy is certainly at a transition point, with prominent green shoots showing, such as strong employment growth, year to date, and an uptick in in-migration. Housing starts are starting to move from their lows this spring, but are still at a subdued pace, especially among apartments.”
A recent Housing Market Assessment from Canada Mortgage and Housing Corp. (CMHC) underscores that, since the start of the oil price crunch in 2014 and the hit to the Calgary economy, the Calgary resale and new home housing markets have struggled. On the upside, CMHC also shows that positive adjustments are now happening.
According to CREB’s Q2 2019 Calgary Economic & Housing Outlook, “With current economic conditions, housing demand will remain similar to levels recorded last year. Supply continues to adjust in the resale market as well as the new home and rental markets. Reductions in housing supply are expected to move the resale market toward more balanced conditions and support price stability by the end of the year.”
Norman emphasizes with positivity that the resale market is turning the corner, at least for the single-family sector. “Demographics and structural factors have also played a role. There was a ton of high-quality newly-built rental product brought to market (ready for occupancy) in the 2015-2017 period, which provided a great alternative for young people first forming households. Together with economic uncertainties, it kept many millennials on the sidelines in terms of home buying.”
He guesstimates that now, four to five years later and an improving economic environment, the tables may turn as many of those young people are now young families looking to move up and into a single-family home.
CREB cautions that while Calgary prices may stabilize, on an annual basis they are expected to remain below last year’s levels. Chief economist Ann-Marie Lurie points out, “Although the Calgary market continues to favour the buyer, a continuation in supply reduction compared to sales is needed to support more balanced conditions and more stability in prices. If this continues, the housing market should be better positioned for recovery as we move into 2020.”
Overall, according to CREB’s stats, the Calgary benchmark resale price fell to $488,900, nearly four per cent below last year’s levels.
Some of the good news is that, by mid-year, due to the combination of improving sales and a decline in new listings, inventories in the Calgary market have actually declined, compared to last year.
“Although the Calgary real estate market continues to struggle,” Norman points out, “prices have not turned sharply negative. Unfortunately, prices have not been rising either and are not expected to increase by much in the next year or so. Interest rates are now falling again, and this may have a lifting effect going into the second half of the year, at least for the resale market.”
Lurie cites some specific numbers as an example of a positive trend. “A key indicator is resale homes in the under-$500,000 segment. It has to happen there first, and then it starts to filter through everywhere else. And it’s a sign that the Calgary real estate trend is starting to shift and stabilize.”
Norman notes that Calgary is a buyer’s market now, due to elevated inventories. “But if sales turn around strongly as we go toward 2020, the market balance could turn quickly, as we have seen happen at other times and in other markets.
“The positive,” he says with an upbeat crunching of the numbers, “is that Calgary’s current real estate conditions make it one of the most attractive buyer markets in Canada.”
