Higher interest rates have cooled Calgary’s red-hot housing market so far in 2023, with both supply and demand backing off from its kamikaze tempo over the past few years.
Yet persistently low inventory levels could have trouble keeping up with a pace-setting provincial economy, resulting in further price increases and a sellers’ market.
In its early spring report, CREB notes both MLS listings and inventory levels have trended up so far in 2023 but remain drastically off balanced conditions.
In January, new listings fell to their lowest level since the late 1990s, recovering albeit slightly in February. By early March, year-to-date listings sat around 4,300, down 40 per cent from the year prior.
“We are not seeing listings grow at the rate we traditionally see, which means inventories are relatively low at the moment,” says CREB chief economist Ann-Marie Lurie, noting months of supply in the city is sitting at under two months.
This tightness is being largely reflected in the detached, semi-detached and row housing categories. And while the apartment condo sector has seen inventory levels gradually improve, persistent demand has similarly reduced supplies.
Regionally, it’s a similar situation in communities such as Airdrie, Cochrane and Okotoks where inventory levels have improved, but still remain well below historical averages, notes Lurie.
While tighter market conditions are creating upward pressure on prices, they are showing signs of slowing down. The year-to-date benchmark price in Calgary by early March sat at $525,900, a three per cent increase year over year, but well off the peak of $546,000 in May 2022.
“However, if we do not see a shift in supply, we could see further upward pressure on prices over the near term,” warns Lurie.
A slower start to the year has helped to mitigate some of those price gains. Sales activity through to early March was down 44 per cent year over year as buyers felt the heat of higher interest rates. Yet Lurie notes sales-to-new-listings ratio in Calgary still sat at 73 per cent.
In new home construction, there has been some good news when it comes to meeting demand. Canada Mortgage and Housing Corp. (CMHC) notes that while total housing starts for all areas in Canada declined 13 per cent to start the year, Calgary is bucking the trend with an 18 per cent year-over-over increase in single-detached starts, and 131 per cent increase in total starts in January alone.
“That reflects a continuing trend of strong housing construction in Calgary,” says Michael Mak, senior economics analyst at CMHC.
“A lot of these developers … are finding it difficult to build in Toronto and Vancouver, especially large multi-family projects. Land costs and financing are quite expensive, so it’s difficult to get the math working. That’s not necessarily the case in Calgary, Edmonton and the Prairies in general.”
Of note, Mak says there continues to be a lot of pent-up demand for multi-family housing in the city. He points to completed and unabsorbed units sitting at less than 700 units currently.
“This means builders have basically sold off all the units that were sitting unsold during the period when global oil prices collapsed and sent Alberta into a downturn,” says Mak. “It took a couple years, but all that inventory has been sold off and we’re now sitting at inventory levels comparable to the 2013-15 period.”
While the Bank of Canada’s continued decision to raise its benchmark interest rates have generally cooled housing markets across the country, many experts believe Alberta will still see strong activity in 2023.
Interprovincial migration has been exceptionally strong. In the third quarter of 2022, Statistics Canada reported that 52,582 people moved to Alberta, a nearly 207 per cent increase from 17,131 in the same quarter of 2021.
To that end, CREB chair Christian Twomey says Calgary’s housing market continues to show resilient affordability relative to other urban centres in Canada.
“From your single-family detached and town homes to semi-attached and apartment condos, the affordability here comparative to the Lower Mainland and southern Ontario is night and day,” he says.
“Prices there continue to be significantly higher than here. And as a result, we’re continuing to see an influx of people moving here from those areas.”
Meanwhile, the Conference Board of Canada is forecasting that Alberta will lead all Canadian provinces in GDP growth this year and next. The board projects Alberta will expand by 3.5 per cent this year and 2.4 per cent in 2024.
“It’s definitely a different scene in Calgary and Alberta right now,” says Mak. “There’s a record number of people moving here, which has created some persistent activity within the housing market.”
Twomey believes buyers are going to get used to current interest rates and result in a strong rest of the year.
“I expect we’re going to see a bang-up spring market,” he says. “All the numbers are lined up for exciting things to happen. Not the rapid growth we saw last year, but a fantastic year in real estate.”