Calgary’s housing market showing signs of stability, but the road to a full recovery will take time.
If Calgary’s housing market was a hospital patient, it would have been in intensive care for the last year. Today, though, the patient is showing signs of serious recovery.
First quarter data for 2017 from the CREB®, released earlier this month, reveals the market could be entering a period of stability in which supply and demand are essentially balancing out in the detached sector of the market.
“When we talk about recovery, we have to differentiate the marketplace conditions because there are two segments facing different prospects,” said Ann-Marie Lurie, chief economist with CREB®.
In effect the current and near-term storyline for the real estate market involves two separate tales within the same city. There’s the detached market that seems to be improving, and then there’s the apartment segment, which continues to struggle, she says.
“Sales in the detached sector have improved from low levels over the past two years, but at the same time fewer listings have been coming onto the market reducing inventory and supporting some price stability,” she said.
In March 2017, detached resales increased by 17 per cent compared with the same period last year, and inventory declined by 25 per cent. Prices have remained relatively stable as a result.
Yet on the apartment side, the picture has actually worsened, and that’s to be expected, says Lurie.
“With apartments, the challenge is increasing supply in the new home sector weighing on the market,” said Lurie. “There is a large amount of new apartments under construction, and it is difficult for supply to quickly adjust to the current demand environment as builders rarely halt construction midway through a project.”
Still, apartment sales increased, as did the attached segment in the first three months of the year compared with the same period in 2016. But prices have continued to fall over this span year-over-year.
This comes as no surprise, says Robin Wiebe, senior economist at the Centre for Municipal Studies with The Conference Board of Canada (CBoC).
There is a large amount of new apartments under construction, and it is difficult for supply to quickly adjust to the current demand environment as builders rarely halt construction midway through a project.
“The real problem has been for developers who got excited during the boom before the oil prices collapsed,” he said, adding these developments were driven by high demand and low supply, which resulted from bullish economic conditions buoyed by $100 barrel oil.
Canada Mortgage and Housing Corporation (CMHC) data shows that completed and unoccupied apartments could be “counted on one hand in the city of Calgary” before the downturn, Wiebe says. Correspondingly, the market responded by ramping up supply. But many developers’ timing could not have been worse.
“The price of oil collapsed and all these guys lured in by the low inventory are now sitting with completed projects or nearing completion, and there just aren’t enough buyers.”
The latest CMHC numbers point to the extent of the problem – almost a 400 per cent increase in new apartment units completed and unoccupied year-over-year. Today, more than 800 new units are on the market compared with 222 the same time last year, Wiebe says.
“That’s why on the resale side they’re facing tons of competition and prices are weak,” he said. “And they’re probably facing an extended period of relatively high apartment inventories as a result.”
Moreover, while job numbers are improving, the economy is still weak. And housing is unlikely to turn around until economic conditions improve leading to more jobs. Employment growth “is critical” to the real estate market, Wiebe says. Jobs increase migration and that helps drive housing growth.
Job growth has gone on a small run of late, he adds. And oil prices have stabilized, which is equally important. “These are good signs for the resale housing market,” said Wiebe.
Still, Calgary’s real estate market has a long way to go before it experiences significant growth, says Lurie.
“The improvement in employment is encouraging, as it is necessary to support stability in the housing market,” she said. “However, the time it takes for the housing market to fully recover will depend on the strength and source of economic growth.”
In fact, she expects the city may face an entirely new normal of slower growth.