What’s happening in Calgary’s Real Estate market? Let’s look at our Real Estate board data, and tie everything together with a heavy dose of context.
Supply & Demand
Real Estate is a commodity. In my opinion, a sometimes irrational and usually emotional commodity; but nonetheless a commodity traded based on supply and demand.
I’ve discovered some view their primary residence simply as shelter, or an investment, or a liability, a store of value, or a method of forced savings. I do not consider any of this right or wrong, good or bad. Real Estate is what I make it for myself and whatever position I take in Real Estate, supply and demand are fundamental to understand.
Housing supply has been very low this year for many reasons. One popular reason for detached housing supply being so low is the utility of housing has shifted. The pandemic, and resulting economic lockdown, created an opportunity for some to reimagine the use of their home to include a viable location for working. Those without housing were seeking more space to allow for this remote work opportunity. For those with housing, selling did not seem good for them. Labour and material to build homes also seized as the global economy ground to a halt, adding to a lower supply of housing. Pandemic related factors also contributed to increasing buyer demand.
Buyer demand for detached housing unexpectedly surged in the pandemic. I thought there was pent up buyer demand set to be released due to economic lockdowns of 2020. Looking back, I think there are YEARS of pent up buyer demand set to be released into Calgary’s detached housing market. The oil shock of 2015, resulting job loss in Calgary, interest rate hikes in 2017/18/19, stricter Mortgage qualifying rule changes, and falling home prices, kept many Calgary homebuyers sidelined in fear. Fear not anymore! Why? Policy response.
Monetary and fiscal policy makers around the globe stepped in to lower borrowing costs to all time lows, propped up credit markets/businesses, and conducted large scale asset purchases to provide financial liquidity at a critical time. Honestly, I could see the system moving in real time …the onset of the pandemic resulted in many of my Mortgage lenders hiking rates to accomodate for increased credit risk. Monetary policy started to flush into the system removing risk and providing liquidity, and rates reversed course. Very cool to see first hand. Let’s all acknowledge, loosening or tightening credit policies largely influence the direction of asset markets (Real Estate included). Look no further than what is currently driving our Real Estate markets today!
For many, living close to the core of our City was not the same experience as pre-pandemic life (short commute to office, proximity to friends/core lifestyle etc). Thus started an exodus to suburban living, on steroids. This movement is not limited to downtown Calgary folks moving to Calgary suburbs. I think, and have experienced in my business, folks moving from other larger urban centres in Canada to areas like Calgary. This phenomenon also primed the housing demand pump. And investors are noticing.
I’m also hearing, and experiencing in my business, investors from other parts of Canada entering Calgary’s Real Estate market. Why? Value. Inner city detached homes around the half million dollar price tag are readily available. A plethora of downtown condos less than $350,000. All combined with reasonably high rental rates and upside for price appreciation. Investors are noting this Real Estate value and other City of Calgary benefits (roads, low crime, clean water, proximity to mountains, etc.). Out of town money is also driving demand for Calgary housing.
Another factor driving demand is answering the question, “where do I put my money“? Many Canadians choose housing. And why not? Based on policy decisions from the Bank of Canada and Federal Government, maintaining high home values seems to be is of national best interest.
How long will the current supply crunch and elevated buyer demand last? Anyone’s guess. Here is my guess (*personal opinion*) …housing will be about the same as it has always been. We see prices rise, fall, and go sideways. We will have opportunity, mixed with difficulty. Whatever is happening at the time, I tend to extrapolate and think this is the way it will always be. History has shown me that not to be true. Is the housing market different this time? Year after year, markets in Vancouver and Toronto continue to drive higher, beyond what I can understand is even possible based on fundamentals (note, I am an outsider). I think as long as low borrowing costs are here, Real Estate market continues to rally. I suspect a large (continuing?) wealth transfer to younger generations, to assist with large down payments that reduce Mortgage size to make payments attainable, will become more frequent as values drive higher. I think owning a home could continue to be more of a privilege, than fundamental right. Note, my personal opinion.
Supply, demand, and a whole lot of dynamics influence Calgary Real Estate prices. Now, the data.
Detached Housing Data:
Sales To New Listings Ratio
This ratio combines home exiting (sales or expired listings) the market, with homes entering the market (new listings). This gives us a window into what near term changes to housing supply might look like.
A elevated, or rising ratio, indicates fewer net new homes for sale. This shrinks supply which is an indicator of upward pressure on pricing. The best example of this was Oct-Dec 2020. Note the rise of this ratio month over month and how elevated it was relative to previous years. We ended up having a busy Spring market (I noted that in my December post here).
August 2021 sales to new listing ratio remain elevated, relative to past years. Seasonal trends are also being maintained year to date. A typical build up of inventory happens each Fall season, shrinking over the tail end of the year.
Sales volume is still very high in Calgary, but new listings are also strengthening as sellers take advantage of high pricing.
Absorption Rate
This number tells us in months, how long it would take to liquidate all of Calgary’s detached homes for sale, based on the current invetory and sales volume.
A traditional absorption rate indicative of a balanced market Real Estate market is between 2-4 months. Lower absorption rates suggest negotiation strength for the seller. Higher absorption rates present negotiation strength for the buyer.
Calgary’s detached absorption rate is trending higher from ultra low, and ultra hectic March/April months. Charts below show shrinking housing supply, and a obvious upward trend leading to a more sane (?) housing market.
Below is also a chart showing year to date sales, by price range, up to July 2021. We can see a very clear spike in sales volume. This spike in sales, combined with low inventory is a classic recipe for upward pressure of prices.
Average Price
Average numbers are, average. For example, for many years Canada’s average national detached home value was rising. In Calgary, prices were falling. Looking at average national data did not represent more local trends in Calgary. The same could be true for specific areas within Calgary. In general, when I look at an overall market, average data is used as a trend.
2021 average home values are up, with many price ranges seeing continued upward pressure. I think, with several months of hindsight now available, it is possible the price peak was reached in March/April 2021.
Apartment Data
Sales To New Listings
We can see a nice seasonal trend grinding higher with month over month higher highs, and lower highs relative to previous years. The sales to new listing percentages still indicate a high number of apartment units for sale though.
I am hopeful with a “return to normal” trend of life as we work through this pandemic, along with continued monetary and fiscal policy homeownership demand support, Calgary apartments can dig out of 6+ year slump. Looking back, purchasing a Calgary apartment NOW might be the final section of a long term bottoming pattern?
Absorption Rate
Similar to detached housing absorption rate, apartment absorption rate is also off the spring 2021 lows, trending hither. There is positive news with absorption rates being lower than prior years.
The second graph below shows a increase of apartment sales, with an similar increase to apartment listings.
Median Price
Median price for Calgary apartments is consolidating sideway for this year.
Conclusion
Canada, and Calgary’s Real Estate market, is in the backwash of a once in a 100 year global pandemic, and pandemic response. Extraordinary monetary and fiscal response, from policy makers around the world, have buyod financial and Real Estate asset prices. The pandemic, and pandemic response, has changed supply and demand for Real Estate that set the stage for a price boom.
At what point, if ever, will other factors that influence Real Estate price movement have a more influencial role is price action? Remember factors like net migration, wage growth, unemployment …things like that :-)?
I hope this has been helpful for you. If so, please let me know. Comments, questions? Type below. Call me direct for your Mortgage needs.
Talk soon,
Chad Moore
