UPDATE (August 2011) CREB has revised 2011′s forecast, click here
Had Ricky Gervais hosted CREB’s 2011 Forecast Conference, he might have cracked a joke such as: ”They jumped the gun and released their 2011 forecast before CRTC’s regulatory change that would allow the broadcast of any false or misleading news that could result in financial harm.”
If a newcomer came to the city and based their buying decision on 2011′s forecast, it would seem like a no-brainer to BUY NOW.
- Net migration to increase 340% over 2010
- Oil & gas prices up
- Employment up
- New single family home starts to increase 7% to 6000 units
- New multifamily starts to increase 11% to 4000 units
- SFH listings to drop 1.6% while condo listings drop 12.5%
- SFH sales to increase 19.9% while condo sales increase 15.8%
- SFH average price to increase 4.1%
- Condo average price to increase 1.8%
It looks like it’s going to be a perfect year! And while I wish, wish, that were the case I’ll outline why I don’t believe it’ll be quite that rosy. I might be way off base, but this an instance where I would be happier if I were wrong 
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I can see an average price increase for 2011, providing overall sales are weak and the luxury segment remains steady. It’s explained briefly in the forecast:
Confidence in the oil patch and improvements in the overall global economy may trigger sales of larger and higher priced homes, prior to an overall rebound in more average-priced property. This will put upward pressure on average prices
As we’ve looked at before, the luxury segment really doesn’t trend the same way as the rest of the resale market.
A better gauge would be the median price and to keep an eye on Teranet’s House Price Index to see what house prices really are doing.
The forecast continues:
Actual price appreciation will require a resurgence of sales in the entry level homes to fuel a sustainable recovery and create a more balanced market.
So it was a little surprising to read CREB state the 2011 forecast wouldn’t change in light of the federal government’s announcement on Monday.
BNN reports (video, 3:35 mark) that for the average Canadian buyer (keeping in mind average Canadian house prices are lower than Calgary’s) the changes translates to a 0.5% rate increase, or 7-8% reduction in affordability. Not exactly an insignificant amount.
That these tightening conditions, as well as possible interest rate hikes later in the year, would result in a 19.9% and 15.8% increase in sales while prices rise seems counterintuitive. While this will mostly just affect marginal first time buyers, it’s still a change that would result in a decrease of sales. The CREB forecast also stated that there is “little pent up demand from renters.”
BMO Nesbitt Burns economist Douglas Porter said resale prices in Canada could drop as much as 7% within the next 12 months because of the change to amortization lengths, as buyers who would have opted to spread the cost out over 35 years are forced instead to take out borrow less in order to keep their payments affordable.
However, according to CREB’s forecast, it’s not lower prices that will spur sales.
So what is this forecasted increase in sales – which by the way would mean sales would be higher than 2008, 2009, and 2010 levels – dependent on?
A lot of ”if’s” and “should’s”.
“If we see the job growth that we expect to happen in Calgary then the in-migration should occur and that should drive the sales.” – CREB
With more activity in the energy sector that should help support employment growth and that will strengthen demand for housing – CMHC
The forecast is based, not on conditions indicative of today, but on hoped for conditions in the near future. With little demand left within the city, in-migration is all that’s left to propel the housing market.
Interestingly, the forecast expects the housing market in Calgary to improve in the second half of the year while the rest of Canada slows down.
Economists Benjamin Tal and Emanuella Enenajor of CIBC World Markets stated in their recent report:
“The softening in the monthly pace of job creation from an average of 31,000 in 2010 to 22,000 in 2011 will single-handedly slow growth in personal spending by more than 0.4 of a percentage point…Our expectations that the housing market will stagnate in 2011 and might even see some softening in the second half, suggests that the estimated 8-per-cent rise in net worth in 2010 will not be matched in 2011.”
Scotia Capital economists Derek Holt and Gorija Djeric have this to say:
“We remain of our long held belief that Canada is tapped out on housing and household finance variables that are all at cycle tops, in contrast to the U.S. that has already moved well off cycle tops and may be creating some pent-up demand. Examples include the home ownership rate, house prices by any definition, near record debt payments as a share of after-tax incomes, near record weakness in housing affordability, and record debt-to-income and debt-to-asset ratios.”
So once again the essence of CREB’s forecast is that “it’s different here.”
Frankly, I would be a little gunshy to make such an optimistic sales forecast especially after last year’s results:
Forecast vs Actual Sales (click to enlarge)
I hope I’m wrong. It would be nice to see the housing market stabilize after the ride we’ve been on the past 5 years.
Will employment growth, wage increases and in-migration be enough to counter the effects of tightened lending standards, reduced affordability and increased inventory?
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Calgary Daily MLS Statistics
To make it easier to compare statistics, I’ve now added the “Year-over-Year Comparison” column on the daily stats. Hope you find it useful!
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