Home Month and Year August 2022 Is the Hot Market Cooling?

Is the Hot Market Cooling?

Tight market conditions continue


The rollercoaster of Calgary’s hot real estate market may not be plunging, but definitely shows signs of cooling down.

The cool-down is not as sudden or sharp as in some other markets like Vancouver and Toronto, but although the rest of 2022 and potentially 2023 Calgary real estate looks stable and encouraging, there is a gradual Calgary cool-down happening.

As tracked by the recent Desjardins Economics Canadian Residential Real Estate Outlook, the two speed-bumped years of the pandemic fuelled demand and Canada had world-leading price gains, but that has also begun to cool, reflecting spiked mortgage rates and increasing borrowing costs.

Calgary’s real estate market is somewhat unique. “A few factors are at play since the slow down we saw in early 2020,” says Michael Mak, senior analyst, Economics, with CMHC. “Economic recovery in Calgary and Alberta has been sharp since the pandemic started, and the pace of job gains was quick in 2021. Unemployment rates in Calgary have now reached pre-pandemic levels, with employment fully recovered, if not higher in most industries.

“With a stronger and more resilient economy, Alberta also saw a reversal in interprovincial migration, from a net negative (outflow) of people to other provinces for several quarters in 2021, back to a positive (inflow) of interprovincial migration which serves to drive both ownership and rental markets. At the same time,” he says, “international migration resumed from easing restrictions and demand for housing in Alberta and Calgary continued to rise.”

According to respected Calgary realtor and CREB chair Lorna Hamm, “Housing market activity is always driven by a number of influencing factors. It really depends on the individual needs of each buyer and seller, but certainly the last couple years have really redefined the concept of home, and when you combine that with a low interest rate climate, consumer demand has gone up. But cooling off?

“There’s no doubt that sales activity has eased somewhat from those exceptionally strong levels seen earlier in the year, but we are still seeing conditions that favour the seller.”

High prices. Listings-to-sales ratios. Mortgage rates. Various Calgary factors impact the hot market and nudge it, gradually, toward a balanced market.

“In addition to COVID-related savings and the desire for more space, the low lending rate is one of the major factors that have supported the surge in demand growth,” say CREB economist Ann-Marie Lurie. “At the same time Calgary has also been benefiting from job growth and a rebound in migration into the province. While gains in migration and job growth will help offset the impact of higher rates, the rates gains have been higher and steeper than original expectation so I do expect that the higher rates will have a cooling impact on housing demand.

“While cooling is expected, I do not expect a complete collapse in sales, as there is still the offsetting factor of a better economy in Alberta thanks to a stronger energy sector and a growing tech sector. The demand levels have been so strong that supply has not been able to catch up causing price gains that were far stronger than expected in the early part of the year (YTD benchmark was up over 15 per cent),” Lurie adds.

Despite common assumptions, rising mortgage rates significantly impact Calgary’s real estate market but are not the magic formula for a cool-down.

“While mortgage rates are not the pure factor in driving this market,” Mak notes, “the expectation of rate increases have incentivized consumers to push forward their homebuying plans in order to meet rate locks. This results in a higher number of potential homebuyers competing for the same number of lower listings. Higher rates in the near future – the rest of 2022 and likely 2023 – should serve to cool-down the resales market compared to early late 2021 and early 2022.”

In Calgary, supply and demand still trump rising mortgage rates. “While higher lending rates are weighing on sales activity, the market is still struggling with supply levels and rising prices which could also be contributing to slower sales, especially in the detached market,” Lurie says.

“Nonetheless, if this shift continues, we could begin to see more balanced conditions in the market over the next several months, slowing the pace of price growth in the market.”

Lorna Hamm points out that Calgary is still seeing tight market conditions, although real estate is very much local and it’s always important to consider the unique characteristics of each community and neighbourhood when evaluating the balance between supply and demand.”

CMHC Calgary forecast projects strong housing demand into 2023. “Rising mortgage rates will be the main factor in slowing down sales and price growth. We expect 2023 sales to be below what we saw in 2021 and 2022, but at a rate higher than sales activity in 2015 – 2019,” Mak adds. “We also forecast average prices to continue growing, but at a slower pace than what we saw in the second half of 2021 and early 2022.”