Hey Guys!
Is it too late to wish you all a Happy New Year? Who’s resolutions are fading already? Common, the rest of you liars ;-). Honestly, thanks for reading so let’s get 2023 going!!
Let’s review the final month of Real Estate data from 2022, and identify some trends for the first quarter of 2023.
How do we do this? Let’s look at supply—and some key ratios that influence near term changes to supply.
Let’s also continue to monitor Calgary housing demand, and the core factors that influence it (jobs, income, net migration, credit cycle/rates etc).
Below is a breakdown of a couple data points for two sectors of Calgary’s RE market, which are a) detached housing and b) apartment units.
Detached Housing:
Sales To New Listings:
This data combines houses entering the market with houses exiting the market. Any ratio OVER 100% indicates there are more homes exiting the market, than being added. This is a near term indication of lower supply.
A great example of this was December 2021 …the sales to new listings ratio was WAY over 100% which lead to a severe housing shortage, at a time with crisis level interest rates. We know how that played out.
December 2022 sales to new listings was over 100% again! We still have more homes exiting the market (sales) compared with new listing being added to the market (inventory). Calgary’s detached housing market is still severely undersupplied.
In some price segments of Calgary’s detached market, demand is still outstripping supply (even with interest rates that are 100% higher than last year).
Will this mean competitive offers $100K+ over list price? I don’t think so, but competitive bidding is still prevalent. I think buyers are more patient this year, which is not difficult to say relative to last years FOMO mind set.
Absorption Rate:
The absorption rate is a quick indicator as to “what’s happening” in a Real Estate market.
Why?
This data point captures total inventory and sales volume. The absorption rate tells us in months, how long it would take to liquidate all inventory at the current sales pace.
Historically, an absorption rate between 2-4 months is balanced. Lower numbers indicate a sellers market. Higher numbers favor buyers.
December 2022 landed Calgary’s absorption rate below 2 months, again. Very low! This is a function of total inventory and sales. Let’s look at the data …
Inventory December 2021: 902
Inventory December 2022: 1,061
Sales December 2021: 1,006
Sales December 2022: 617
Sales are down 39% year over year, while inventory is also up 15% year over year.
The BIG question is … will inventory accumulation continue to outpace purchase demand? Let’s look at new inventory for this past year:
New inventory December 2021: 646
New inventory December 2022: 495
People are not exactly rushing to sell in this market. And this could be for many reasons …a) detached prices are off peak and b) rates are higher.
Again, let’s see how many sellers and buyers surface this Spring.
Average Price:
The average detached home price is off peak from Feb-March 2022. Our market has seen these “peak-valley” price cycles before—I can’t say the same for other parts of Canada.
Remember, this data set is for average numbers of Calgary detached homes. Each niche area within our City will have variation which will be beneficial to drill down into with your Realtor.
Apartment Housing:
Sales To New Listings:
Apartment sales to new listings data is much higher than recent history. Higher sales, and lower new listings, are helping with price support, and appreciation.
The lower overall price of condo apartments is appealing to buyers for a couple reasons, 1) high cost of borrowing lowers overall qualifying and 2) detached home prices saw a big surge in value the pandemic, while apartment value appreciation lagged (#workfromhome), 3) apartments might have more upside in value appreciation.
A trend towards condo purchasing could be a theme in 2023? This might be an opportunity for apartment owners to sell at past or near previous peak pricing, and purchase a detached home off peak pricing.
Absorption Rate:
Not surprisingly, condo apartment absorption rates are much lower than recent years.
Again, demand is coming from a decrease of affordability due to qualifying interest rates at around 7%. Anecdotally, investors from other parts of Canada, searching for yield, have been focusing on Calgary apartments.
I think it is possible we look back on this time as a great window to sell an apartment. That said, I don’t know where prices will be in coming years.
Median Price:
I’m seeing the median price trend at the upper end of recent years data, with good fundamentals for further upward pressure.
Conclusion:
2022’s Real Estate market goes down as one of the most dynamic I’ve experienced.
We had price appreciation that was difficult to understand. We had demand for Calgary detached homes from coast-to-coast. We had generationally low interest rates. And then we had a generationally rapid rise of interest rates.
Leading into 2023, we continue to have net positive migration to Alberta, a federal government that is juicing population growth, a profitable oil and gas sector, and a under supplied Real Estate market.
A major headwind to Calgary’s Real Estate is higher fixed interest rates, and potentially higher rates from our central bank. At minimum, the current rate environment displays duration at these current levels.
Wouldn’t you say, “interesting times”? I think so.
I hope this data is helpful!
Let me know if you have any questions relating to your sale or purchase plans.
Talk soon
Chad Moore
P.S.
I think I’m checking a couple New Years resolution boxes …1) new gym clothes, 2) new gym membership, 3) sore body. I’ve also tweaked my diet by eliminating bread from my breakfast.
What about you? Common, I know you’ve made some changes. Let me know!
P.P.S
I’ll have some inflation and jobs data coming soon! Next week the Bank of Canada is making another interest rate announcement …it’s possible another 0.25% rate hike is looming! More to come!
HNY and thank you again for reading!
