Excess supply keeps housing prices low in Calgary’s apartment sector
It’s a seasoned phrase that harkens back to childhood memories of excess, but it’s hard to argue with the idea that too much of anything isn’t good for us.
The sentiment certainly holds true when considering the buffet of housing options in Calgary’s apartment sector. As most product types have started the slow churn toward more balanced conditions, apartment product is struggling to digest a smorgasbord of inventory.
“Overall conditions appear to be improving, but the market is still behaving a little differently on the apartment side,” said CREB® chief economist Ann-Marie Lurie. “Inventories are still rising as the growth in sales is not enough to compensate for further gains in new listings.”
A full 1,269 apartment units sat on the market in January, pushing supply over one per cent higher than this time last year. Plus, the number of new listings coming onto the market isn’t doing apartment sellers any favours. January new listings reached 626 units, a 4.68 per cent year-over-year increase for the month.
The result is an apartment benchmark price that totaled $269,900 in January, five percent lower than levels recorded last year for a total decline of 11.5 per cent since the high in 2014.
“Elevated supply in the resale market is only part of the challenge, there is also increased competition from the new home and rental markets,” said Lurie. “This has contributed to the steeper price declines that have occurred in the higher density markets since the start of the downturn.”
But there are two sides to every transaction, says CREB® president David P. Brown, and while this market is proving difficult for sellers, prospective buyers are benefiting from a more robust set of housing options.
Elevated supply in the resale market is only part of the challenge, there is also increased competition from the new home and rental markets.
“Major price declines are unlikely in most segments of the market, except maybe in the apartment sector,” said Brown. “It’s the one area where there is still a large amount of excess supply. The big thing for buyers, especially first time buyers, is coming up with that down payment. This group should be looking at their long-term objectives and really considering the whole spectrum of choice before making a final decision.”
And Brown’s advice for apartment sellers is to stay the course and stick with what works. He says this year is about slowly moving away from extremely challenging conditions.
“The transition is going to take some time, which means sellers need to stick with the fundamentals of pricing their homes correctly against other comparable product in the market,” he said. “This is ultimately what will differentiate one property from another, even in a market so saturated with product.”
It’s a philosophy that already appears to be working in the detached sector where sales activity totalled 584 units in January, a considerable improvement over the 466 sales recorded last year.
Inventories have also declined, pushing the months of supply to 3.2 months, well below the 5.4 months recorded in January 2016. The city-wide benchmark price for a detached home was lower than last year’s levels in most districts of the city. However, January detached prices of $698,600 and $359,100 in the West and East districts remained similar to levels recorded last year.
“These are pockets of progress,” said Brown. “It’s not a full scale turnaround in any area of the market, but when you see a bit of a surge in one area, you know it can snowball into positive momentum in other parts of the market.”
“This isn’t a time to panic for apartment sellers, it’s an opportunity to zero in on what makes your property stand out. Now is the time to focus on smart pricing and the key differentiators that separate your property from the rest of the pack.”