What is one major driver of Real Estate values here in Canada?
Loosening and tightening of the short term debt/credit cycle is a primary driver of asset values moving up and down.
Just look at what happened across Canada when pandemic era stimulus (credit loosening) seeped into our market.
We are clearly at the beginning of a credit tightening phase in the short term debt cycle. I wrote you about the Bank of Canada’s credit tightening plans in my two part feature – “future of interest rates” (Part 1 & Part 2).
What does this mean for Calgary Real Estate though?
Let’s review some statistics for single family detached homes and apartment units to help cut through the noise.
1. Sales to new listings ratio.
2. Absorption rate.
3. Average/Median price.
The fundamentals of supply/demand live on in Calgary’s Real Estate market!
Detached Homes:
Sales To New Listings Ratio:
This ratio combines homes exiting the market (sales) with homes entering the market (new listings). This ratio is helpful to compare year-over-year and month-over-month statistics for context of housing supply.
Understanding the supply side of Real Estate helps me witness trends that influence changing property values.
For example, back in September 2021 I was waiving the flag of a growing listing shortage of detached homes.
There were clear signs the apartment segment was changing rapidly back in December.
What’s happening today? Anecdotally, I’m noticing more buyer offers coming into my office with financing conditions. I’m glad to see the ultra-competitive buying environment is easing.
For several months, buyers were lured into writing offers without any conditions in hopes of winning a multiple offer scenario. This is extremely stressful, for many reasons. I’m seeing this offer strategy still happening in Calgary’s market, but only on select properties now.
Here is some sales and listings data for comparison:
March 2022 sales: 2,280
March 2021 sales: 1,865
March 2022 new listings: 3,152
March 2021 new listings: 2,611
April 2022 sales: 1,851
April 2021 sales: 2,140
April 2022 new listings: 2,540
April 2021 new listings: 2,770
We can see the ebb and flow of these numbers. What I think is important to note is maintaining a consistent sale to new listing ratio trend. So far, sales volume is meeting listing inventories which is keeping our market propped up.
Absorption Rate:
The absorption rate combines total inventory and sales volume to tell us in months, how long it would take to liquidate all listing inventory at the pace of that months sales.
Lower absorption rates indicate a sellers market (favorable in negotiations) while higher absorption rates indicate a buyers market. A “balanced” market is between 2-4 months absorption.
Buyers are beginning to see some reprieve from the ultra competitive market environment January – March was. Calgary’s detached market is still at incredibly low absorption rates – but gently trending higher.
Calgary’s detached market has seen listings come up for sale, but with insatiable demand for single family housing, new listings have been flying off the shelf.
Average Price:
I’m still getting use to how high these new average sale numbers are.
In each of the past couple of years, peak pricing seems to have happened early in the calendar year. Could February 2022 be the peak for Calgary?
Inventory is likely the key to Calgary detached pricing stability. The balance between sales and new inventory is interesting to see unfold.
Apartment Units:
Sales To New Listings:
Calgary is seeing drastically different numbers year over year in the apartment condo segment.
Month over month data is trending toward longer term averages, but still way above past years. Apartment oversupply dogged Calgary for years. Seeing supply be absorbed is a welcome sign for owners. I think buyers are also purchasing well off peak pricing, with equity increases in front of them.
Absorption Rate:
Again, absorption data is very different year over year. We might look back and discover the bottom was March 2022. However, condo apartments are being bought at a rate describing a more “normal” market now.
Median Price:
Median price is near multi-year highs. There is lower sales volume of apartment condos so the data can skew if there are clusters of high or low priced sales. Overall, the median trend is flowing up and to the right.
Conclusion:
In the face of tightening monetary policy, can Calgary’s Real Estate market continue on it’s pandemic tear? Supply and demand will be helpful leading indicators of what might be to come …
There is another less tangible factor that influences the Real Estate market: sentiment.
If I believe values will continue to rise, I have the tendency to feel good about purchasing. If I think values will fall, I have the tendency to “wait and see”.
Look at the recent sales data. The volume of people purchasing homes when prices are high versus when prices are low seems to be human nature. This is the influence of positive or negative sentiment (along with other factors).
I find the sentiment – across Canada – is very positive for Calgary Real Estate!!!
I’ve experienced, and heard from associates, the volume of people moving from Ontario is having a meaningful impact on our market.
These out of province buyers are selling high, and buying low (wouldn’t you?). I don’t know of any regulatory body that is capturing this data, so I can only speculate on the extent Calgary’s market is being influenced by this trend.
However, if I extrapolate my known experience of these kinds of buyers, I think they are having a meaningful influence on sales volume which absorb listing inventory.
Here is something else I find interesting …the Real Estate professionals I follow from Ontario are waiving the red flag as buyer sentiment is changing rapidly out there. Perhaps this helps more ON buyers find their way to Calgary?
Above is some data, and a bit of my personal opinion. I hope both are helpful for you in your search for Real Estate truth.
Do you have any Mortgage or Real Estate plans you would like help with? Reply to this email – they come to me!
Chat soon,
Chad Moore
P.S.
My non-functional hot tub is going to be meeting my sawzall here really quick. I thought about bringing it up to speed, but decided to break it down and make a couple dump runs. What spring projects do you have in the works?
P.P.S.
Go Flames Go!!
