After two years of recessionary conditions, there is renewed optimism Calgary’s housing market will stabilize this year. Such expectations might not affect all property segments and types, but this is still good news for home sales that have declined by 12 per cent below long-term averages since the downturn.
In fact, there is hope that both detached and attached real estate segments will reach balanced conditions as economic conditions slowly improve.
“Sales activities, while they are expected to remain low, are not expected to decline any further,” explains Ann-Marie Lurie, chief economist at the Calgary Real Estate Board (CREB). “They are starting to level off at lower levels essentially, but it is a reflection that economic conditions are not expected to get any worse and some improvements are expected to come.”
Still, the benchmark price in the apartment/condo market is expected to drop another two per cent because of high inventory levels, while single-family home values are expected to stabilize with the decline of new home inventories and resale listings.
CREB’s recent 2017 Economic Outlook and Regional Housing report forecasted citywide sales to make a three per cent gain over 2016 with detached home prices projected to rise by 0.8 per cent to $506,260, and attached home prices to rise by 0.5 per cent to $334,648. These projections are encouraging for city districts that have experienced declines in sales and price reductions during the past two years.
In particular, this news is especially reassuring for those living in the city centre where steeper price contractions occurred during the onset of the recession. Lurie says, “This segment of the market was impacted first. So, we started to see that pull back in demand a lot sooner in the higher end of the market relative to the supply. Now, this year there is no question that (supply) has been starting to decline.”
An overall easing of product inventories will not just benefit the higher-end detached market, but it will help other districts to gain more stable conditions as well.
“We saw some moderate improvement in sales, but at the same time – in the higher end of the market – the amount of listings have also been dropping, so, the oversupply is starting to come off,” Lurie adds. “There is almost an adjustment to the new reality of lower demand and that is what will help reach stability.”
Subsequently, the moderate improvement of inner-city home sales last year might have been attributed to low inventory and better affordability in this segment of the market.
“Many are taking advantage of the lower prices in luxury homes to move up into a home that they could not have afforded before the recession,” says Calgary Realtor Karen Fawcett with RE/MAX Realty Professionals.
Fawcett attributes this slight movement in home sales to anticipation things will improve. “I am also seeing buyers outside of Calgary that have been watching the market closely deciding that now is the time to buy; which was reflected in the increase in activity we saw in December,” she adds.
Yet, Lurie cautions it will take a gradual shift to reach balanced conditions across all real estate segments since sales remain significantly below normal, and price stabilization needs to occur.
The district with the largest price reduction – the southeast – was mostly affected because of elevated inventory levels and added competition from new home builds.
“There are a lot of new communities in the southeast which impacted that district more,” Lurie explains. An oversupply of new builds forced the detached sector in this area to fall the most year-over-year in benchmark price by 5.1 per cent to $447,967 while the attached sector fell 4.56 per cent in benchmark price to $242,542.
In comparison, the north fared much better during the downturn with only a 1.77 per cent decline in the detached benchmark price of $443,225 year-over-year while the detached sector prices in the northeast fell slightly more by 2.12 per cent to $390,317 in the benchmark price year-over-year. These two districts did better than others because there was essentially more demand for homes in the price point areas.
Overall, the west had the best growth with 1,226 detached home sales at 13 per cent, but still had a decline of 2.35 per cent in the detached benchmark price of $697,467 year-over-year.
Levels in inventories essentially need to balance with demand in order to stabilize the real estate market. Lurie says, “Really what the story is to me is a lot less about demand because we know that demand is remaining weak, but it is really about supply adjusting to the new levels of demand.”
Likewise for new construction builds, “2017 should see a year of moderate growth, primarily in the second half of the year as we work through both standing MLS and new inventory in all sectors,” says Allan Klassen, chair of BILD Calgary Region.
Klassen predicts new construction projections this year in the range of 3,200-4,000 for single-family homes; and 3,800-4,800 for multi-family homes depending upon year-end standing inventory.
“There has been a slowdown in sales primarily due to the amount of supply in the apartment/condo market, (but) there are some amazing opportunities in this market to purchase a single-family or semi-detached home that consumers are opting for,” Klassen says.
While there is a slight positive outlook that inventory levels will gradually rebalance with demand, there still remain risk factors that could slow recovery. Some concerns depend upon the current economic conditions and the new mortgage regulation rules that are affecting real estate.
“The new rules will certainly not help the Calgary market,” says mortgage broker, Paul Bojakli with Quantus Mortgage Solutions. “I feel they will negatively impact the market in a couple of ways (through) purchasing and refinancing. We have seen significant changes already – basically everyone qualifies for less.”
Bojakli says it means there are fewer financing options for homebuyers that may affect all segments of the market. “Many of our clients who were approaching their maximum qualifying number are now looking at a purchase price roughly 20-26 per cent less than it was before the changes,” he adds.
This weakening in purchasing power can potentially put a downward pressure on the real estate market, which for some has changed their mind from buying. Still, it will be hard to say if the new mortgage rules will deter homebuyers. “Everyone wants to own a home, but it’s going to come down to affordability – matching that with the home you want,” explains Bojakli.
Ultimately, Calgary’s real estate market has many hurdles to overcome due to the current economic landscape and new mortgage regulations – to name a few. But, there is no doubt a recovery will happen; it is just not known how long this will take.
