The Calgary Housing Market Moving Forward

“Elevated inventory levels compared to sales are causing prices to ease further in Calgary’s housing market” CREB November 1^st, 2018.

As with any change in the real estate market – whether upward or downward – there are great opportunities for both Buyers and Sellers. We have been infiltrated with negative news for many months, and often it does seem that there is no end in sight. Here is an analysis of the market today and insight into where I feel it is heading over the next few weeks, months and years. Although at the onslaught it may seem negative and dismal, there will be many opportunities, especially if you are considering changing your current real estate position. Upsizing, downsizing or right-sizing, there is plenty of room for growth.  

Total sales across Calgary are at the lowest levels in over ten years, as a matter of fact, sales of detached homes in the city are at the lowest we have seen since the late 1990’s. Consider the population in the late 90’s had not yet reached a million, while today we are estimated at around 1.3 million! Adding to this issue is the increase in new listings. Although we have seen an “easing” of new listings over the past few months, we are still at the highest we have seen since 2014, prior to the oil price fiasco.

Looking a little closer at the inventory, we can see the ratio between the inventory and sales is still quite high. Although it looks like the ratio has been easing a bit since June, a lot of that has to do with listings being taken off the market rather than actual sales figures. Since the beginning of September there have been 4,477 listings taken off of the market across Calgary. Although many have been “re-listed”, there are still a significant portion that have stayed out of the listing pool since then. In that same period of time there have been 3,107 sales.

I have concerns regarding some of this inventory coming back onto the market early next year that was listed in the recent past, and the possibility of that coming back at a lower price point than it was when it was previously listed. In the second graph we can see that inventory has been trending up for the past five years. That, in combination with the possibility of the relisted homes returning, could point to some trying times in 2019. Many owners that are considering their selling options look very carefully at the spring market, as that is seasonally the most robust sales period of the year. Looking at the sales portion (in green) of the graph above certainly shows that was true this year. There was a steady climb in sales from January to June, sales have eased off month by month since then. In the same graph we can also see that inventory increased significantly in that same period of time, and at an accelerated rate in comparison to the sales figures.

Taking a longer view of the market and what has happened in the market since the craziness in 2006/2007 when inventory was extremely low and demand peaked due to a large influx of new Calgarians from the rest of Canada and abroad, we can see prices jumped considerably. We can also see the continuous downward trend of price change since the oil price fiasco in late 2014. Our inventory trend is also climbing and although not at the highs we saw in late 2008, we certainly seem to be heading in that direction.

For prices to go up, we need a variety of things to happen in Calgary. To start, low oil prices in the past few weeks and the brutal price differential for our Alberta oil is taking its toll on the economy across Alberta, and especially in Calgary. The potential development of pipelines to take our oil to the coast and the international market is taking a kicking, and that is something that we need to help us on the world stage. Although we are hearing that things are getting better in that industry, the low prices since 2015 have certainly slowed exploration and the potential for more employment in Calgary and the rest of the province.

I was recently in conversation with a recruiter for a medium oil company and was told they are currently looking for quite a few full time employees, she also mentioned that many of her colleagues in other companies are in the same boat. I asked if they are finding employees from outside of Calgary and she said most have been unemployed locally for some time, or are looking to move from another local company to reposition themselves. I think this is a good start and shows that things are perhaps improving in that industry, the question is when are we going to start pulling from the national or international pool and have a significant in-migration to the city again.

Secondly, our unemployment figures are still teetering around the 10% level in the City. Our city core is close to a third empty and more commercial space will be coming online shortly as they finish up the Telus Sky, which will be the 13^th tallest building in Canada with 60 floors. The top 28 floors will be more residential space. City Council is trying to figure out how they are going to make up for the decline in down town property taxes and are looking at business in the suburbs to make up the difference.

Interest rates have gone up six times since July 2017 adding further turmoil to the real estate market, especially for first-time homebuyers. That, in combination with a stricter qualification process for new mortgages put in place the past couple of years, has also taken its toll on the market. All of this has contributed to the fact our net in-migration has been sluggish and in negative territory since 2015, although there are signs this is easing up and looks like we could possibly be heading into positive territory, although not in the numbers we have seen prior to 2015. Add to the mix the uncertainty of where our property taxes are going, many potential buyers – whether they are new to the city, or someone considering a new move – are opting to hold back to see what happens. The real estate market is driven by “urgency”, I need to buy this before prices go up, someone else buys it, etc....that urgency is also in a lull.

City Counsel has also approved 12 new communities across the city, something we have not seen since Nenshi has become our Mayor, one of his early mandates was to stop “urban sprawl”. I think their intent here is to improve the tax base, but I wonder where the new homeowners are going to come from? “If you build it, they will come”?

So taking all of this into account, one needs to wonder “why” the coming year will be better than the past few years as far as sales and urgency. These doldrums will turn around, the million dollar question is when that will be? I contend that we are talking many months, possibly years before we see positive gains in real estate. If something profound happens in the oil industry, or a fabulous new industry comes to the City, all this will change around and we will start to travel upward again. I expect further devaluation in property values for a significant amount of time, I would suggest it could take at least two years to come back to the values we have today. If we only see downward price adjustments for the next couple of years, it will take at least the same amount of time to increase to where we are today from that point.

So what is the take away from all of this information?

As a Seller, one needs to be running on all cylinders right out of the gate. A property has to be priced aggressively. That does not mean “underpriced” or priced below market value, but to be priced as close to the potential value today. The property also has to show well, both online and when someone visits and views the home. We are in a beauty contest as well as a price war to some degree. Keeping a close eye on the market in your area is also key once you are on the market to be aware of any subtle changes in the local market. What this information means is paramount, and your professional real estate advisor can provide prudent insight into those numbers.

As a Buyer, there are many choices with an abundance of inventory. Some – but not all – sellers will be more flexible in such a market. Sellers are often priced aggressively right off the bat and prices have eased over the past few years. Being aggressive and pro-active when new properties come up that meet most of your search criteria is also important as there are many interesting and well-valued homes that come on the market and are sold relatively quickly. Interest rates are creeping up, and we anticipate further increases in the coming year. It is a great time to take advantage of lower rates, which contribute to your affordability.

Regardless of whether you are a potential buyer or seller, information is key and what it actually means is most valuable. Having solid in-depth analysis and strategic insight to go along with this information will help you make an informative and well educated decision in moving forward on your real estate journey.