New report paints mid-term picture
RBC Economics economist Craig Wright and Robert Hogue say the provincial recession continues to weigh on housing demand in Calgary, and such weakness is increasingly undermining prices.
In the bank’s Canadian Housing Health Check released this week, the report’s authors note the drop in property values has been generally modest to date; however, the pace of decline has accelerated and further downside remains.
Here are five things to know about contributors to Calgary’s housing health so far this year:
1. Demand threatens balance in resale market:
The RBC report notes demand-supply conditions in the resale residential housing market have weakened since mid-2015. The sales-to-new listings ratio eased to an average of 49 per cent for the first four months in 2016 from 70 per cent as recently as June 2015.
2. New construction tapering off:
The scaling back of single-detached home starts has contributed to a decline in the number of units under construction, thus posing minimal risks of destabilizing the market. The multi-unit side also continued to moderate, yet remained high due to a wave in condo starts in 2014 that are still under construction. RBC noted current levels pose significant risks for the market, especially in light of rapidly weakening demand.
3. Unemployment on the rise:
Unemployment is surging in Calgary. The jobless rate set a 21-year high of 8.6 per cent in March, up from five per cent a year earlier – although it eased slightly to 8.3 per cent in April. The report’s authors note the speed with which labour market conditions are deteriorating poses significant risks for the housing market.
4. Population growth slowing:
Deteriorating job prospects contributed to a slowdown in Calgary’s population growth — to 2.4 per cent in April from a recent high of four per cent in early 2014. While the authors note that pace remains robust by most cities’ standards, it is weaker than Calgary’s long-run average of 2.9 per cent. Any further moderation threatens to erode Calgary’s traditionally strong demographic fundamentals for housing.
5. Rental market over-supplied:
Calgary’s rental market showed signs of being over-supplied. According to Canada Mortgage and Housing Corp., vacancy rates in Calgary will rise to seven per cent by this fall, up from 5.3 per cent in 2015. Such high vacancy rates
raise significant downside risks for rent values in the area and revenue prospects for condo investors, noted RBC.