Chad Moore Calgary Mortgage Broker

I think a combination of decreasing housing supply and enormous government stimulus has primed Calgary’s housing market for a busy Spring ’21.

Let’s look at today’s Calgary Real Estate Board (CREB) housing data from the month of November 2020 to help anticipate future price directions.

Three data points can be helpful:

1. Sales to new listings ratio.
2. Absorption rate.
3. Average/median price.

Fundamental Acknowledgement:

Supply and demand. These two market forces move the price of commodities across the globe. The CREB data primarily focus on supply side metrics that influence Real Estate pricing.

Demand side factors that influence pricing are incomes, net migration of people moving to Calgary, demographics and or government policy.

Here’s an example of government policy that increases demand … Years ago Canada Mortgage and Housing Corporation (CMHC) decreased the minimum down payment requirement to 5%. Maximum amortizations were also extended to 40 years. This created increased housing demand.

The last 10+ years have been Mortgage rule tightening (income underwriting policy change, stress test interest rates, capital reserve requirement etc) that decrease demand.

Today, government policy is influencing the Real Estate market again. These policy decisions are not directly in the Real Estate vertical, but the results are increasing demand for Real Estate assets. More on this below …

Calgary Detached Housing Market:

Sales To New Listings:

This ratio combines homes exiting the market (sold or expired listings) with new listing inventory.

Really, this data point will help answer the question, will more or less homes be for sale in the coming months?

When I look at the sales to new listing ratio I am seeing a above seasonal trendline higher month over month (m/m) and year over year (y/y).

There is significantly less new detached homes for sale in the market than years prior which is helping support home values.

Total inventory November 2019 – 3,002
Total inventory November 2020 – 2,244

Absorption Rate:

This data point tells us in months how long it would take to liquidate all of Calgary’s detached housing inventory, at the pace of that months sales.

This is a combination of total inventory and sales volume for each month.

We can see below Calgary’s detached absorption rate has been trending lower for months and is significantly lower than the past couple of years.

Absorption rate indicates who has a favourable position at the negotiation table. Lower absorption rates tend to favour sellers. Higher absorption rates tend to favour buyers.

November detached sales 2019 – 703
November detached sales 2020 – 883

Average Price:

Seasonally, we are seeing the average detached price fall. Look for this trend to continue through December.

I think the leading indicators of sales to new listings ratio and low absorption are enough, alone, to anticipate a price supportive Spring market.

Apartment Data:

Sales To new Listings Ratio:

This data point is increasing nicely m/m and y/y which is a positive indicator.

Absorption Rate:

Calgary’s apartment absorption rate is tightly clustered with previous year data. A absorption rate of 7+ months is historically very high and favourable to apartment buyers.

Median Price:

The median number is the middle number, in a line of numbers.

A long-term reduction of median prices for Calgary apartments continues.

Government Stimulus Increasing Housing Demand

Government’s create policy directly aimed at influencing demand for housing. Today, government policy is indirectly influencing demand for Real Estate (and other assets I.E., stock market).

Here are a couple different paths that all lead to increasing demand for Real Estate:

1. Low, ultra-low, interest rates (blog post link here). The cost to borrow hundreds of thousands of dollars is very inexpensive. If people feel confident making the payments, they borrow money to buy a home.
2. Encouraging banks to lend. Minimum reserve capital requirements for banks have been reduced. Banks are encouraged to lend more money into the economy.
3. Corporate wage subsidy. People remain employed. When people are employed they feel confident to purchase a home.
4. Emergency relief money (CERB etc). This individual income is not directly eligible for Mortgage qualifying. However, government income helps families retain savings that can be used to purchase a home. One family member getting government income can stabilize the family, which is accomodative for other family members to feel confident to take on a Mortgage.
5. Deferral(s). People deferring their payments helped retain money for their personal use in the future.
6. Saving. Some people are saving more and spending less on consumer goods due to government shutdowns and restrictions.

I think I could go on …but I think many of you reading can think of a personal example of how Canada’s government has helped stimulate your personal balance sheet or income statement. This is certainly true for me.

Conclusion:

Supply side economics are helping support prices of Calgary’s detached housing market. Supply of apartments for sale continue to be persistent favouring buyers in negotiation.

Canada’s economy is flush full of money, with no end to continued government spending in sight. This level of government stimulus helps prop up demand for Real Estate assets. For this reason, I think asset prices are primed to rise. Have you read my post on how governments create money for spending (link here)?

I really wish more demand for Calgary housing was driven by wage growth, low unemployment, net positive migration to Alberta, an expanding natural resource sector and a resulting confidence in housing values. The market does not care what I wish for :-).

Do you have a Mortgage question? If you are planning to sell, buy, refinance or renew your Mortgage – let me know. chad@canadamortgagedirect.com or 403-809-5447

Talk soon,
Chad Moore