How Is Calgary’s Real Estate Market Fairing With A Full Month Of COVID Under Our Belts?
Let’s take a look at three data points from the Calgary Real Estate Board May report for the month of April for both the detached and apartment market.
- Sales to new listings ratio.
- Absorption rate.
- Average/Median price.
Spring is synonomous for fresh new home buyers, new listings and the beginning of a bustling Real Estate season.
We know what took the wind out of those sales. But what happened?
Detached Homes
Sales To New Listings Ratio:
This ratio combines new listings with sales. This helps one anticipate the amount of future inventory expected in the market.
A rising data point indicates less future inventory. A lower data point indicates building inventory.
What’s interesting …for April the sales to new listings ratio held pretty steady as there was a simultaneous errosion of supply and demand.
Home owners did not flood the market with new inventory. And buyers opted to stay home.
New detached listings were down 56.23% year over year.
Detached sales were down 63.23% year over year.
This ratio held it’s own …
Absorption Rate:
This data point combines new listings, existing inventory and sales together. The absorption rate tells us in months, how long it would take to liquidate all inventory at the pace of that months sales.
And this is where things get weird …considering the carry over of January-March listing inventory, and the cliff home sales fell off, the absorption rate spiked like no other time in history!
With this kind of ratio in the market, total supply is outstripping demand, and in general, that is a recipe for lower prices.
Average Price:
As one might expect, average price of a detached home in Calgary is down.
As you know, Real Estate is very local. Each quadrant, area, neighbourhood, street and price point will effect the price.
All of this data is for detached houses as a indicator of the market. Please let me know if you would like a referral to a trusted Realtor in Calgary.
Apartment Homes:
Sales To New Listings:
The apartment sales to new listings ratio remained about the same year over year. Again, new apartment listings were down 54% with sales of apartments down 62%.
Absorption Rate:
Again, this graphic is rather shocking. Here’s what’s happening …The carryover of inventory from January-March, combined with net new listings in April and a sales number that fell flat on it’s face, we get this data point.
Median Price:
With the volume of new sales plummeting, inventory that was traded held the median price of apartments firm in the month of April.
Conclusion:
The million dollar question is where will prices be in the future? I’ve asked a friend, used my 50/50 and have been polling other Real Estate professionals.
The writing is on the wall …the carry over of pre pandemic listing inventory, combined with net new listing inventory, and a much smaller pool of home buyers equals down pressure on pricing.
I think this kind of supply/demand relationship is intuitive for many people. We now have CREB data that speaks to the fundamentals.
Here’s my prediction on the market …
- New listing inventory, priced in the market, will sell (not a shockingly new idea). Buyers are smart. I think the days of listing high, hoping to get the price my neighbour got last year, are well behind us. Buyers are still purchasing homes they believe to be good value. It’s happening.
- Pent up demand will be released – for buyers AND sellers. I’m hearing about pent up buyer demand. But what about pent up seller demand? If sellers come at the market fast-and-furious, without a equal matching of buyer demand, listing will pile up and create more of a buyers market.
- All bets are off when the Mortgage deferral allowance concludes (if it’s allowed to*). As the economy enters the phase of staged reopening it’s going to be difficult for lenders to continue to grant deferrals due to the pandemic. At some point Mortgage deferrals could turn into Mortgage arrears, and then Mortgage defaults.
One of my lenders said they are planning for a 15% Mortgage default rate in the next year (unpublished conversation). This is about the rate of Mortgage deferral requests in Canada. I think this default number is on the higher end of the spectrum because as people are working again (even if at a lower income bracket) many will find a way to pay their Mortgage. Unfortunately, some will not find a way to pay.
If home owners think selling their home might be their best option, as the Mortgage deferral allowance is not a option anymore, inventory could rise sharply.
*I think the governing bodies in Canada have already done SO MUCH to save people’s home/Mortgage that it would be an epic waste to allow things to fail in the near future. For example, if the economy shuts down again in the Fall due to a resurgence of COVID-19, how can the Government not step in and allow Mortgage deferrals again? More stimulus? More liquidity?
I think for many, the known debt to disposable income ratio of Canadians was one of the highest in the developed world. Debt, with no income, is like swimming in the ocean with an anchor around my neck. I’m eventually dragged down.
I have hope to limit the amount of pain in our housing market though! I think Calgary’s employment market is relatively resilient with people’s context of our cyclical economy still very fresh from 2014/2015.
Calgary’s housing market has not seen a material bump in pricing for years so I don’t think we have as much to lose, relative to other parts of Canada.
I think at lower price points (less than $500,000) there is a market of buyers (1.2M people in Calgary) and pooled family income to reasonably afford entry level properties.
Higher price points are facing the lions share of headwind. They either require A) higher incomes for debt serviceability or B) significant down payments to lower Mortgage amounts for lower incomes to debt-service.
I have home buyers with their fingers on the trigger, looking down the barrel of the gun with one squinted eye in focus, ready to purchase a home.
Many are waiting for various reasons, others are taking action. What will the majority do?
Stay tuned to my blog for more info as it comes out related to Calgary’s market, macro-economic happenings and interest rates.
Talk soon,
Chad Moore
P.S
Biking. I picked up biking again. I’m in need of truing my back wheel and fixing two broken spokes. I’m yet to check YouTube University …how hard is this fix in reality??
