House prices are weakening in Calgary, but it doesn’t look like the serious correction some expected at the beginning of the year. In fact, Calgary’s real estate market has moved from a sellers’ market in 2014 to a more balanced one now. And even some optimism looms, as the province has lived through boom and bust cycles before.
There’s a lag effect before prices can catch up to the drop in sales and buildup of inventory and that’s what’s happening now.
Job losses and further cuts in business investment in the oil patch are underway, but the Calgary Real Estate Board (CREB) forecasts benchmark home prices to decline by less than 1 percent for 2015.
CREB chief economist Ann-Marie Lurie spoke with Epoch Times and feels this downturn is different because the real estate market started from a position of strength as the price of oil began plummeting late last year.
“We’ve seen inventories go up, but they’re nowhere near the highs we’ve seen before that would warrant too much oversupply,” Lurie said. “We’ve just really moved into more balanced conditions.”
It might seem like ancient history, but Calgary used to be lumped in with Toronto and Vancouver as Canada’s three hot housing markets.
“If you think about what happened in January, it was more of a shock at the time. There was a lot more of ‘We don’t know what’s going to happen, we don’t know how bad this one’s going to be,’ what impact it will have,” Lurie recalls.
Back in January and February, home sales were declining at rates of close to 40 percent year-over-year with new listings increasing by over 30 percent. Inventory was basically doubling.
July’s sales declined by 14 percent, but new listings declined by 7 percent. The months of supply figure, which had dipped below 2 in 2014 is up to 2.53. This 2.53 is down from just over 4 earlier this year.
“Now we haven’t seen the double-digit drops in housing prices and people are assessing essentially what is their current situation. No question, we’re seeing a lot less activity and demand has slowed,” Lurie said.
“We are hearing that some of the communities are having price cuts. On aggregate it’s working out to a moderate pullback.”
From the CREB’s 2015 mid-year forecast released July 29, overall sales activity is projected to decline 22 percent from 2014, but only 6 percent lower than activity over the past five years, which reflects the out-sized strength of the market last year.
Benchmark home prices declined 0.15 percent annually and 1 percent lower than January’s level, according to CREB’s monthly update for July. It’s the first time benchmark prices have posted a year-over-year decline since 2011.
The most notable impact is being seen in apartment prices and, to a lesser extent, in some of the more expensive homes, which are more likely to be tied to people working in the relatively well-paying energy sector.
“The $700,000 to $1 million was almost 9 percent of the market and now it’s almost 8 [percent],” said Lurie. “We’ve seen that shift.”
Apartment prices fell by 1.61 percent to $293,300 due to weak demand and growing supply.
But while the weakness in apartments is greatest, for Calgary, it’s one of the smaller components of the market.
Seen it Before
“Many clients are optimistic about the long-term outlook and are less concerned about short-term fluctuations in the housing market,” said CREB president Corinne Lyall in the Aug. 4 press release.
Calgary’s commodity-based economy has been here before. Now, people actually have a bit more choice in terms of properties and depending on their time horizon, the longer the better, they may be able to withstand the current volatility.
“It’s history. We’ve been through boom and bust cycles before in this province,” said Lurie.
Past bust examples include the 2007 fall in prices and the prior episode with natural gas, which came down in price and never really recovered. The shift to oil from natural gas was a big change for Calgary.
“Everybody talks about oil, but it was natural gas for some time,” said Lurie. “That sector hasn’t really returned to the level we’ve seen before.”
Demand is slowing and house prices are creeping lower, but the Calgary situation looks more like the “soft landing” government and central bank policy makers used to talk about in 2014.
Oil prices moved lower in July and the Bank of Canada expects a greater cut in business investment spending in the oil patch (40 percent as opposed to 30 percent earlier in the year) due to lower expectations for oil prices going forward. Those factors don’t bode well for Calgary’s real estate market, but given its position of strength prior to the oil price crash, the current scenario appears to be manageable.
Follow Rahul on Twitter @RV_ETBiz
