Here’s a brief summary of how we got ourselves into a heated housing market:
7 Year Calgary Real Estate Summary:
Peak pricing in 2014. Calgary’s Real Estate market was white hot at that time with a bit more fundamental support. Oil prices were $100+ barrel, unemployment in Calgary was ~6% and people from Canada were drawn to Calgary/Alberta seeking employment prospects.
Late in 2014 there was an oil price shock. The plunge in oil prices hurt Calgary’s oil and gas sector very badly. In fact, the entire country took an economic hit. The Bank of Canada lowered national interest rates as a result! Some of the news headlines relating to locals losing their jobs over the next several years were unbelievable. Very sad times for many.
2015-2018 Calgary’s Real Estate market was a grid. Some sellers were forced to sell less than they purchased. The rest of Canada was the polar opposite of Alberta …rising Real Estate prices, low unemployment, some wage growth. The Bank of Canada was tightening monetary policy at the same time more restrictive Mortgage qualifying rules took effect. These forces put further pressure on home prices in Calgary.
Herd mentality turned sour. I think this period of time (2015-2020) resulted in the herd mentality of potential buyers in Calgary to be turned off Real Estate. Generally, when prices fall in Real Estate buyers pull back hesitant to “catch a falling knife”. It’s possible today’s market is experiencing pent up demand from many years of sideline buyers.
Calling the bottom. I thought 2019 was nearing the bottom of Calgary’s detached housing market. I published an article here speaking to that (link). I thought 2019 was the beginning of the end of a very bearish Calgary housing market. Oil prices had recovered to a seemingly stable level and a slow Real Estate recovery was budding.
Epicness. We’re all aware 2020 brought some drastic changes to our lives and economy, that when looking back, have drastically shaped the housing market today. Some of the monetary and fiscal policy changes, and how they might affect our market long-term, is what I am trying to wrap my head around. Here’s a quick recap of new policy influencing Calgary’s housing market:
Invisible Hand: Government Policy Influencing Calgary’s Market:
Artificially suppressed interest rates. The Bank of Canada started buying government of Canada bonds to artificially lower interest rates. Canada’s bank also lowered interest rates to 0.25% (effectively 0%).
Mortgage backed security purchases. The Bank of Canada increased the amount of insured Mortgage purchases in Canada, providing liquidity to Mortgage lenders encouraging them to create credit.
Easing of capital retention requirements. Banks are allowed to lend more money into the housing market without being required to retain as much capital reserves.
Providing calm forward guidance. Messaging from the Bank of Canada has been very clear. Rates are expected to remain low for a long time. Essentially, go and spend money. “We’ve got your back”.
Helicoptering money directly to people. Money is entering the system through direct payments to people, interest free loans, employer benefits, augmented Canada Child Benefit, EI …the list goes on.
Mortgage and other loan deferrals. Do not make payments.
The above is a lot of government intervention which influences the economy/housing market. Obviously, our policy makers are reacting to the pandemic. I’m trying to “see through” some of these policies, when they might change and how much they are influencing buyers?
We have demand forces in our market that are also not exactly simple for me to understand or see through:
New Social Dynamics Influencing Real Estate Decisions:
Work from home. The use of home has changed for many people. Will the return to employer office space be the same on the other side of the pandemic? If not the same, what might that look like? What effect might this have on people’s future decision to buy or sell Real Estate?
Pent up and and/or pull forward demand. Calgary’s Real Estate market is showing me the release of pent up buyer demand. I wonder how much buyer demand we are also pulling forward? I also wonder how much buyer demand is speculative? I also think about how much demand is from outside of Calgary’s market (remote workers moving to Calgary and or speculative/investor buyers)?
The herd mentality. If I was to visit any patio in Calgary and ask people about the housing market I bet I would hear either personal stories or stories from very close friends about the craziness of Calgary’s housing market (selling homes quickly, losing on a bidding war, buying over list price etc). The overall narrative is out: house prices are rising!
Lock down and increased saving rate. With people’s restricted travel and spending opportunities, the saving rate in Canada is up! It’s possible more of these savings are directed to asset investment. How might this change on the other side of the pandemic?
The shocking cost to building a new home. We’ve all heard the price of lumber is through the roof. I’m also hearing many other inputs to new housing construction are either supply restricted or prices have significantly risen. How long might these phenomenons continue? How might the rising cost of new homes influence resale home prices?
The inflation outlook is uncertain. As the global economy reopens, how high and how persistent might inflation be? I think our policy makers are planning (praying?) for a near term rise of inflation numbers to be transitory. What if inflation is persistent? How high might interest rates rise? Will there be additional policy intervention if rates rise to high and too fast? What if policy makers do not raise interest rates; how might that affect home prices?
Immigration to Canada/Calgary. I think Canada needs immigration to grow. I’ve heard government immigration policy will be very aggressive once pandemic travel restrictions are lifted. Will this surge of new Canadians be enough to sustain demand for housing in Canada?
As you can see, there are many new monetary, fiscal and social dynamic forces at play in Canada’s housing market right now. For me, I’m doing my best to remain updated, with a neutral mindset, in an attempt to update my clients. There are no shortage of bulls and bears, on the extreme ends of the economic spectrum, that I hear from. The more closely I follow these trends and seek out the thoughts of people whose opinions I respect, I am discovering no one really knows what might happen?
With the high-level summary behind us, let’s drill down into monthly data for Calgary’s housing market:
Detached Home Data:
Sales To New Listings Ratio:
This data combines homes entering and exiting the market. A 100% ratio means for every home that enters the market a home exits the market. Lower ratios indicate a build up of inventory.
I can see below the sales to new listing ratio is higher year over year and month over month. Historically speaking, this indicates less new home inventory available to purchase.
However, considering the elevated demand and sales numbers in Calgary, this ratio tells me there is housing supply. I do not think a shortage of housing supply is a driving force in our market. Looking at the second image below, I can see sales and new listings added in 2014. In 2014, on top of strong demand for housing there was also limited supply.
I anticipate 2021 data to have a similar seasonal trend for the remainder of the year. Let’s keep an eye on any major divergence of this trend like we witnessed September-January.
Absorption Rate:
This data point combines total inventory with homes sold to give us an indication of how long it would take (in months) to liquidate all homes for sale.
Calgary’s surge in home sales has tanked this number to record lows!! Let’s take a look at 2021 data relative to 2019 data.
Sales in April 2021: 2,046 Sales in April 2019: 930
*New inventory April 2021: 2,772 Inventory April 2019: 1,787
This is something interesting …new inventory added for April 2021 is 2,772. Total remaining inventory at the end of April 2021 is 2,780.
As I outlined above, there are many social and economic factors contributing to housing demand …and here we are!
Average Price:
I mention this when referring to all average numbers …Real Estate is hyper local. However, I think having some context of directional average numbers is worth knowing.
The second image below shows the total sales by price range in Calgary. This includes all property types (apartment, row and detached). I think it is likely a large percentage of units sold at or above $600,000+ are detached homes. This alone will drag the average detached price higher.
Apartment Housing:
Sales To New Listings Ratio:
The sales to new listing ratio is trending higher, which bodes well for apartment pricing. The second image below shows the rise of sales, but also a similar rise to inventory.
I think the light at the end of the tunnel for apartment pricing is here. The current buying frenzy is sure to spill over into apartments.
Absorption Rate:
Looks like I’ll have to adjust my graph next month!
Apartment sales April 2021: 440 Apartment sales April 2019: 251
Apartment inventory April 2021: 1,810 Apartment inventory April 2019: 1,546
Median Price:
Conclusion:
I think I started this post with a summary you might consider reading again.
This content takes some time to write and plan so I appreciate you for reading and sharing. I’m very curious to hear from you. What do you think Calgary’s Real Estate market future holds. Comment below or email directly, chad@canadamortgagedirect.com.
