CMHC's Richard Cho says everything from employment levels to household income and migration to spending levels signal to tough times ahead for the local housing market. CREB®Now file photo.

Resale market impacting housing starts outlook

The sound of hammers has quieted in Calgary.

Following a record-breaking year for new home construction in the city, the pace has slowed considerably in 2015.

Through the first five months of year, the number of new homes starts in Calgary has numbered 3,954 – a 32.5 per cent drop from the same period in 2014.

The decline was even more dramatic in April, with just 777 homes breaking ground during the month compared to 1,952 during the same time last year – a decline of more than 50 per cent.

With continued uncertainty in the energy industry, Canada Mortgage and Housing Corp. (CMHC) isn’t predicting the number of new homes under construction in the city to increase anytime soon.

“Positive net migration and low mortgage rates will continue to support housing demand in the Calgary region,” said Richard Cho, CMHC’s principal market analyst for Calgary. “However, increased economic uncertainty, coupled with rising existing home supply, will slow new home production through 2016.”

Following 2014’s record construction year, which saw 17,131 new homes added to the city, CMHC’s projections call for 13,200 in 2015 and just 11,500 in 2016.

Calgary’s multi-family sector is predicted to see the largest declines, falling by 29.5 per cent in 2015 and 20 per cent in 2016. In the single-detached sector, starts are predicted to fall to 5,700 in 2015 – a drop of 12.2 per cent, with a smaller decline of just 3.5 per cent forecast for 2016.

Declines in the number of starts could help control inventory levels not only in the new home market, but also in Calgary’s resale housing sector, said CREB® chief economist Ann-Marie Lurie.

“It’s more about what’s under construction and what comes under inventory,” she said. “So the good thing is that if starts pull back, that means it’s less additions under construction and less additions to inventory. That will help prevent further potential build-up in the future, especially if economic conditions don’t start to improve.”

Cho echoed Lurie, citing the number of listings coming out of Calgary’s resale market as a contributor to the drop seen in the new homes market.

“Builders have been facing more competition from the resale market as active listings have increased from the previous year,” he said. “This along with lower demand for housing has contributed to the decline in new home construction.”

In fact, listing levels in the city have actually fallen through the first five months of 2015 when compared to the previous year. After accelerating by 11.1 per cent through the first three months, listings have since slowed resulting in a year-over-year decline of five per cent through to the end of May.

“I’m seeing in some of the areas that we follow and watch that some of the listings are starting to drop and that the market has found its price,” said Brad Logel, sales and marketing manager for Cardel Lifestyles, Cardel’s multi-family division, which has four active developments, including Cranston Ridge, Auburn Walk, Sage Place and Nolan Park.

“I think at the beginning of the year there was a lot of questioning what will happen, but, for the most part, those homes that are priced well and reasonable are selling within a reasonable amount of time.

“This May, things started improving and I think people are saying ‘Hey, things are pretty good. The sky isn’t falling. Interest rates are low. There’s a little bit more selection, so I’ll take advantage of it.’”