March 1-14, 2013 Calgary Real Estate Update

In their February recap of the Canadian housing market, TD Bank wrote that “the housing markets in Calgary and Edmonton already went through their correction in 2009 and firmer prices and sales are likely to be supported by an above average labour market performance and strong in migration flows.”

That seems to be the case thus far in March as sales are pacing just ahead of last year’s level.

Single family average prices remain elevated due to the continued strength of the high-end market: 26 properties have sold for a million or more compared to 20 last year during the same period.

But that’s not to say that the rest of the market isn’t seeing price gains. The MLS® HPI rose +8.0% year-over-year last month, marking some of the strongest price growth our city has seen since the spring of 2010.

Prices are also being supported by the lack of homes on the market, with inventory down -23%, and new listings off by nearly -3% month-to-date.  It could be argued that this lack of supply is also hampering potential sales.

SFH sales (click to enlarge image)

SFH sales (click to enlarge image)

Condo Sales (click to enlarge)

Condo Sales (click to enlarge)

Weekly Statistics: March 1-14

Weekly Statistics: March 1-14 (click to enlarge)

4 responses to “March 1-14, 2013 Calgary Real Estate Update

  1. From ATB’s Daily Economic Comment for March 15, 2013

    …New houses are about two-and-a-half times as expensive as they were in 1993.

    The chart below reveals that new home prices tracked general inflation quite closely until 2006, when the provincial economy went into overdrive. Real estate prices skyrocketed, nearly doubling by 2008.

    The recession then brought a sharp downward correction in prices, but that was short-lived. Since hitting a recent bottom in June 2009, price increases started to track general inflation almost exactly. The steady and gradual price movement over the last few years suggest that housing market is stable and balanced.

  2. ATB is attributing an economic boom in 2006 to the escalation in AB home prices. Absolutely was a catalyst – NG prices were at all time highs and activity in the O&G sector was booming. No question about the relationship there. What’s got me scratching my head is why we don’t see this economic performance in the AB CPI??

    Without an answer to that, I have some food for thought:
    I think there is more to the 2006-07 run-up than our economic performance as a province. Perhaps CMHC’s loosening of insurable mortgage standards to include 40 year amortizations had something to do with it? Our house price escalation proceeded well ahead of BC or ON – this to me, more than anything, is an outcome of our relative economic performance. Eventually the rest of Canada took advantage of the easy credit boom and saw dramatic prices increases also. It seems they (especially eastern Canada) were about 2-3 years behind AB.

    I like to think of housing affordability as a function of three things – a triangle if you like:
    1) house price
    2) interest rate
    3) amortization period

    Quite simply, these three things mathematically determine your monthly mortgage payment. Carrying costs can stay flat if house prices increase while amortization period increases. The boom created higher incomes and this, along with loosening CMHC standards, allowed house prices to rise at spectacular rates. Thankfully the BoC has back tracked on amortization periods, but I think the effects of this are attenuated by rock bottom interest rates – again keeping affordability almost constant.

    How quickly interest rates rise relative to incomes will surely set the stage for the AB RE market in the coming years. If rate increases outpace income growth, the only method to maintain affordability will be for house prices to flat line, or potentially decrease (more likely for the rest of Canada). AB is in a much better situation than the majority of Canada, but we have to hope we can get some pipelines constructed to improve the pricing on our resources. We can already see what havoc market-price differentials for our commodities are having on the province. Just ask the Tories about their 2013 budget shortfall.

  3. TT, excellent post – thanks for sharing your thoughts with us. With interest rates forecast to remain low until at least 2014 and Mr. Flaherty not hinting at any further mortgage rule changes, it seems price is the biggest factor affecting the ‘affordability triangle’ at this time.

    From TD’s Bottom Line report from Friday:

    Tighter mortgage rules and lending criteria have contributed to a significant cool down in the resale housing market since July 2012. As seen in this morning’s data release, quality adjusted price growth in Canadian resale homes has ebbed on a year-over-year basis. However, the price slow down is certainly not indicative of a free-fall from here on out.

    In our view, the Canadian housing market remains over-valued, but it is expected that price excesses will unwind gradually over an extended period of time, mitigating the grander economic impacts and risks associated with a housing bubble having burst.

    New home construction has also softened in recent months, with starts coming in at the pace of household formation. Worries about over-building remain on our radar. However, the downside risk is increasingly becoming a regional story, as opposed to an overarching national story.

  4. A little further on our affordability discussion, Scotia released their Global Real Estate trends report this morning. (click to download entire report) Here is an excerpt regarding Canada:

    A sharp price correction nationally is unlikely in the absence of a major adverse economic shock, such as a much weaker pace of global growth that could stall domestic activity and hiring. Canada’s mortgage market is sound, and delinquency rates are low and falling. Ultra-low interest rates will continue to provide support.

    Borrowing costs will inevitably drift higher from the unprecedented lows of recent years, adding to housing affordability challenges, especially in higherpriced markets. Combined with the cumulative effects of the tightening in mortgage rules and lending guidelines since 2008, this could limit the potential pool of first-time buyers.

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