With the month of March behind us, let’s look back at the data to gage Calgary’s detached and apartment housing market’s near term price movements.
I’ve been writing this summary for about 77 months now. Throughout time the fundamentals of supply and demand forces remain the primary driver of price.
The pandemic is having a interesting influence on housing demand …
- savings rates have increased.
- time spent at home is increasing.
- working from home is changing home utility.
- release of pent up demand carried forward from 2020.
- interest rates are artificially low encouraging borrowing.
I think the belief Calgary housing is set to rise, as witnessed in other parts of Canada, is a possibility and could be pulling people into purchasing?
I think housing, as a store of wealth, in a era of growing concern over monetary inflation and currency devaluation, is also a consideration for some.
Other buyers? They just want to own a home.
The supply side of Real Estate is what we’ll discuss below.
Calgary Detached Housing Data:
Sales To New Listings:
This data point combines homes exiting the market with homes entering the market. A 100% ratio means for every home exiting, there is a home entering the market. Lower ratios mean there is a build up of inventory.
Looking back to Oct, Nov and December 2020 we could see the depletion of inventory with sales to new listings ratio over 100% leading to today’s tight home supply.
Today, our sales to new listings ratio is hovering around 70%. Seasonally, we are higher year over year but on a similar seasonal trend.
I think a lot of people are “palms upping” the market waiting for listing inventory to grow as buyer demand is strong. Based on the sales to new listings number, I’m not holding my breath.
Absorption Rate:
This data point is a combination of sales and total inventory. This gives us a window of time (months) of how long it would take to liquidate all of Calgary’s detached inventory, at the pace of current sales.
Lower absorption rates are either from high sales volume, low inventory, or both. Low absorption rates favour the seller in negotiation as property is scarce, competitive – usually both.
We can see below, since August of 2020 there has been a steady decline in absorption rate. I think you’ll agree, the past 12 months have been anything but “normal”. Looking at this graph, absorption rates trend lower in Spring, and then trend higher throughout the remainder of the year. Is 2021 a “normal” year? What is “normal” anyway, LOL?
Average Price:
We know where this is going! Prices are up. High demand for housing, combined with lower supply, and we have prices increasing.
Detached housing priced below $500K continues to see support, which has been the case for many months now. Higher price points are also seeing increased activity and pricing support! All signs pointing to higher average prices.
Seasonally, prices peak in the Spring, and trend lower throughout the remaining calendar year. Will 2021 power through?
Calgary Apartment Data:
Sales To New Listings:
This data point is on the seasonal higher side which helps stem an increasing tide of new apartment condos for sale.
Absorption Rate:
Look at this! We have apartment condo absorption rate down to a multi-year low down to a respectable 4.5 months!
At some point, condo apartments will be deemed as “good value”. Could this be the final straw before we start to see data support apartment price growth?
Let’s pause an tip our hat to April 2020 absorption rate numbers again ;-)
Median Price:
The total number of apartments sold each month is less than 1,000 units so the median price can fluctuate (less than average price data) so I like to see multi-month trends, instead of granular month data.
Conclusion:
Low supply. Strong demand. Rising house prices. But for how long? A decade? 36 months? 12 months? FOREVER!!?
I tend to have a recency bias; meaning the way things are now is the way they will always be. I’m trying to lift my head up and see through some of our current market dynamics and anticipate new forces.
Inflation has been a hot topic amongst financial pundits, policy makers and investors. In the past two months there has been a rising trend in U.S. Treasury and Government of Canada bond yields, resulting in higher fixed rate Mortgages. Many point the finger, amongst other factors, to inflationary concerns as why bond yields are rising.
Policy makers, whose mandate is to meet a inflation target, have come out with a position the inflationary pressure anticipated (already here?) in the market is “transitory”. Policy makers are seeing through current forces, and anticipating a balance or resumption of some “return to normal”. The Bank of Canada and U.S. Federal Reserve are saying, yes inflation is planned to increase (here?), but will eventually subside.
Can home buyers apply the same transitory thinking? Can we see through the current surge in demand and lack of supply driving our market? Are these demand and supply forces transitory?
I get it’s hard to look through what’s happening now. Why? The fear of missing out is strong. What if there is no return to normal? What if I sit on the sidelines waiting for prices to stabilize or the market to cool off – and it doesn’t?
Let’s all be reminded, who knows what might change in the future …as I write this, Mortgage underwriting policy is set to change. Again!
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Reach out to me if you are planning to sell, purchase or make any sort of Mortgage change.
Talk soon,
Chad Moore
