f you've been a prospecting buyer in today's market, you know very well how Calgary's real estate market has performed over the last little while, and have probably been wondering -- what the heck is going on?
There are several factors leading to today's problems, ultimately driven by a lack of supply for housing:
1. Supply Issue #1: COVID Hangover
A significant impact to home builders and housing providers nonetheless, to the rest of the world. Uncertainty led builders to sit on their hands, wondering what is happening to the market (slowing / halted market activity), with people adjusting to a new lifestyle (working-from-home), and looking to move away from dense urban centres.
2. Supply Issue #2: Exponential Increase to Interest Rates Since COVID (Homeowners Reluctant to Sell)
Canada'sovernight rate went from 0.50% in March 2020 to now 4.75% in June 2023 - that is a 9.5x increase to borrowing cost to consumers! The insanity of exponential rate increases has led to many who have locked in record-low interest rates, hold onto their homes (and mortgages), ultimately reducing supply that would otherwise be coming onto the market.
Not only would there be heavy penalties associated with breaking fixed mortgages, sellers would have to qualify in a dramatically different rate environment, with their dollars not going as far as it use to.
3. Supply Issue #3: Inter-Provincial and International Migration Favour Alberta
In Q4 2022 alone, Alberta saw >19,000 net migrants from other provinces, largely due to job growth in Alberta paired with a lower cost of living (further details below). A total population add of >58,000 migrants including internationals in only the last 3 months of 2022!
At the time of this email, there are ~1,300 single family detached homes for sale in Calgary, a ~43% decline from the same time last year.
These key supply issues are compounded by further demand for housing in Alberta:
1. Alberta's Economy is Strong
Alberta's Energy Sector accounts for the majority of economic growth, and the rebound in oil and gas prices have allowed companies who operate here, to invest in human capital and big projects that require skilled labour.
Not only that, but Alberta has began to diversify its economy, with new ventures vested towards diversifying Alberta's economy, creating even more job growth, attracting a larger swath of diversified skilled labour.
2. Lower Cost Attraction
Despite the increased inflation pressures across the country, Alberta's cost of living remains well below other major cities in Canada (Toronto, Vancouver, etc.). This has further attracted those who can move, decide to move to Alberta, allowing their dollars to go further out here.
3. Refugees Coming to Live in Calgary
The large spike in immigration has come from refugees settling in Calgary. >20,000 displaced Ukrainians will make Alberta home, with half of them settling in Calgary. This is on top of ~6,000 Afghan refugees that fled to Calgary before, and not accounting for many others from around the world.
What does this all mean?
Well, all signs are pointing to high real estate prices going higher, and also staying there. This isn't driven by price speculation that we've seen in places such as Vancouver - this is driven by pure fundamentals (supply and demand). Until the Energy Sector takes a significant and prolonged hit and interest rates are prohibitively high, will we see prices start to stabilize and come down (maybe). Remember we still have migrants that are looking to house their families, despite the economy.
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The good news is that we're seeing inflation come down (slightly). Its a move in the right direction, with Core CPI at 3.7% year-over-year in May. We know the Bank of Canada has a target CPI of ~2%, so rate increases aren't completely off the table (further supply squeeze). On the flip side, if we see the BoC cut rates in 2024, there will be a dramatic upturn in home prices here in Alberta given the pent-up demand - so our view is that either way, prices may continue to increase and stay elevated.
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What should I to do?
There's a saying in real estate: it's not about timing the market, but time IN the market. As much as I'd like to take an unbiased view, much of Alberta's fundamentals are pointing to buying real estate, and buy soon. Get a rate locked in with a lender so you have the option to buy with a favourable interest rate in case they continue to increase.
There is also nothing wrong with renting. The rental market is strong, and given the increase in home prices, this will push a lot of folks into the rental market, from being a potential buyer. Rents will continue to climb given the supply-demand imbalance, so you have to do what makes sense for you and your family (we're happy to help guide you through a buy or rent analysis).
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