The reason sales in Calgary have plummeted has often been attributed to pulled forward demand – buyers wanted to get in before the new regulations took effect in April or because rising interest rates were on the horizon. If one were to believe in pulled-forward demand, it would mean that a gaping void of sales was to be expected.
CREB forecasted that SFH sales were going to increase 17.7% in 2010 over the previous year. Yet for the first half of the year, SFH sales were down 4.32% and will fall further in the coming months. The fact that interest rates were set to rise in June 2010 had long been forewarned by the Bank of Canada (since April 2009) so that was most likely taken into account in the forecast. However, major changes to mortgage rules were communicated on February 16th after CREB had already released their annual forecast.
Between the time the mortgage rule changes were announced to the time they were to be implemented was slightly over two months. Was there an increase in activity during that period as buyers rushed in before changes took effect?
No. Other than year-over-year comparisons to early 2009 when the global financial markets were still reeling, there was no jump in activity and levels remained well below averages.
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That leaves us to explore that maybe the low interest rates and the fear of interest rates spiking in June 2010 was a catalyst for increased sales throughout the previous year, dragging demand forward.
It’s true that last summer Calgary experienced brisk sales:
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But that was attributed to the “pent-up demand” that was a result of buyers watching on the sidelines during the winter of 08/09. Indeed, the market was horrific during those winter months as sales dropped to record lows and no one knew what the following year would bring. (See months: Oct ’08, Nov ’08, Dec ’08, Jan ’09, Feb ’09)
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Since May 2010, sales have slowed considerably leaving us to wonder what the causes of this were. I would eliminate pulled-forward demand as a leading cause since the data doesn’t support it from my point of view. Interest rates are still low, so that hasn’t become a factor – yet. Alberta buyers didn’t have to race to beat the introduction of the HST like Ontario and BC residents. Have the changes to the mortgage rules had that profound of an effect? If we were to assume so, then a whole host of unqualified buyers have entered the market the last few years and that thought isn’t any more consoling going forward.
What does that leave us besides:
- Current price levels
- Other external economic factors such as employment, income, net migration, and the economy in general.
Would appreciate your thoughts and opinions as always!
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