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.

Calgary Real Estate Market in early 2018

We are off to an interesting start for the first two months of 2018. With the third interest rate hike in six months in mid-January and the change in the qualification process of non-insured mortgages, it was to be expected that we would see a slow start to the year. Chillier weather along with lots of snow may have also impeded sales for the early part of the year.

Although sales of all residential properties in metro-Calgary was down 11% compared to last year for properties under a million dollars, we actually saw a significant increase in sales of homes over that million dollar threshold to the tune of 45%! Combining all property sales in all price categories, year over year we saw a 10% decrease in sales for the first two months of this year:

Lifestyles of the rich and famous?

Taking a closer look at the higher end homes may give us a better prospective of what is actually happening in that sector. The highest sale so far this year was a beautiful home in Britannia that sold for $3.18 million toward the end of February. This home was originally listed at the end of 2015 for $5,995,000 and was on the market for 788 days before they found a new owner. The sellers purchased this in 2012 for a whopping six million dollars. Wow, that is a heck of a loss!

The second highest sale was in Elbow Park. It was originally listed in September 2016 for $3.7 million, they were on the market a total of 388 days and sold for three million dollars. This home was purchased in September 2017 for $3,733,050!

The third highest sale was only on the market 18 days, a bit out of the norm for this price category, originally asking $3.15 million. They sold $257,500 (-8%) below list for $2,892,500.

The fourth highest sale was also in Elbow Park and was on the market for 260 days, originally looking for $3,099,000 and selling for $2.85 million this year. This home was purchased in 2012 for $2.95 million.

And in the fifth spot is this bungalow in Briar Hill. It was on the market for 301 days, originally listing for $2.888 million and selling for $2.4 million. They also listed this home for 301 days in 2013/14 for $3.15 million.

So although on the outset it would seem that folks selling the elite homes in Calgary are seeing an increase in activity, perhaps what we are actually seeing are high-budget buyers taking advantage of a slower, receding market. Granted not all of the 77 sales of homes in this price category are seeing these crushing decreases in value, but it is interesting to see that those five homes sold considerably below their original expectations.  

The rest of the detached market...

When we dip below this threshold and look at homes between $600k and that million dollar mark, we can see that sales for detached homes are down 23% from the pace we set last year. I think this is a significant price category that may very well affect other home sales in lower categories. We want to keep an eye on inventory levels in relation to sales. If we see a significant increase in listings, we risk a deterioration in pricing as sellers compete with one another for a potential buyer.

From February 1st to March 5th about 460 new (or re-listed) homes came onto the market in this price category, about 41% of the current inventory of 1,125 homes. In February there were 134 sales and January there were 105 sales, obviously new listings are far out-pacing sales. Perhaps this increase in the inventory are sellers that are trying to get a jump on the spring market. If new listings slow and the pool of buyers increases as we head toward better weather, perhaps everything will even itself out.

The bulk of our detached sales in metro Calgary are between $400k and $600k. So far this year they account for just over half of our sales. Year over year transactions are down 14%, from 739 last year to 638 this year. Almost half of the current 1,837 listings have been added since the beginning of February.

We are at an interesting crossroads here, hoping the buyer pool becomes more robust as we get closer to the spring market. As per usual our Alberta real estate market is full of intrigue and uncertainty.

Looking Forward to 2018

2017 was a very interesting year in Alberta. It would seem that our economy is back on the upswing, oil prices are on the rebound and our future is so bright, we gotta wear shades… it seems those rose coloured glasses are being worn by most economists. I do hope they're right and look forward to an awesome year as well!

Before we do that, though, let’s have a closer look at how real estate fared this past year in Calgary. For, perhaps, some insight into the coming year.

The first half of 2017...

We were off to a good start in early 2017 with 12% more sales in the first six months compared to the prior year. Those numbers were looking very promising and many were predicting that we were finally moving out of the lacklustre sales period following the oil price collapse in late 2014. In that year, prior to the oil fiasco, our sales were the best in many years and very similar to our peak numbers in 2007.

In 2015, we saw a decrease of 26% in sales compared to the first six months of that prior record breaking year. 2016 also saw falling sales, dipping 10% below sales figures from the year before, and well below (a 34% decrease) compared to 2014. Although the numbers were looking good in the first half of last year, keep in mind the fact we were comparing them to two very troubling years. If we look back to the first half of 2014 and compare it to our “great” start to 2017, we were still 26% below that landmark sales period.

The rest of the year...

In the latter half of 2017 we saw three major events that deeply effected the real estate market in Calgary and all of Alberta. The first event was an increase in the Bank of Canada interest rate in mid-July. We typically see a sales decrease when we get into the summer months, however, a good portion of the 24% decrease in sales from June to July had to do with this rate increase. In the three years prior to 2017 rates decreased between 9 -14% from June to July.  The second rate increase was early September where there was a decrease in sales from August by 8%.

The third major event is the change in the mortgage qualification rules set by the Bank of Canada. The new rules, which were implemented on January 1^st, 2018, essentially dictate that all mortgagees must qualify 2% above the posted Bank of Canada prime rate, which currently is 3.2%. What that means is about a 20% decrease in buying power for those that wish to put 20% down on a home. A similar policy was put into place in October 2016 for all insured mortgages (those where less that 20% was put down by the mortgagee). This had a major effect on sales in the market in October of that year, where we saw a spike in sales that month when folks were trying to get into the market under the old rules.

Although we saw a decent sales month this past December – 8% above last years sales and 5% above the average sales figures from the prior three years – we did not see the significant sales jump that we did when the policy changed for insured mortgages two years ago.

This change in policy will certainly effect the affordability of those looking for a new home and wanting to put 20% down on the purchase. I would suggest that perhaps a portion of those buyers may decide to put less down and qualify for a higher insured mortgage, taking some of the pressure off of the downward trend in affordability. 

The first six months of this year will be crucial in seeing how the new policy affects sales and values, and how that portion of the market (conventional mortgages) reacts to the changes.

A volatile 2017...

Real Estate values have also fluctuated dramatically over this past year. The average sales price in Metro Calgary in December was $451,587, the lowest it has been since January 2013. The silver lining to that is the fact the highest average sales price in Metro Calgary – ever – were in May ($504,230) and June ($500,889). These have been the only two times we have surpassed that half a million dollar threshold. That 10% decline in average value between May and December is one of the most volatile in the past few decades as well. 

What will 2018 bring?

Inventory levels are on the increase, there were 15% more listings this December compared to last year and one of the highest inventories that we have seen in a decade. 

Sellers will need to be well aware of the market and any nuances that may effect values to maximize their equity position. There are many extraneous variables that may effect the market over the next year such as the net migration of new folks moving to Calgary, the employment rate and - of course - the price of oil. Average values will most likely deteriorate as we move through 2018 and adjust to the new mortgage rules, however, there are still exceptions to the "average". Being cognizant of the market and aware of how a property is presented and marketed will be prime components of how successful one is in the coming market.