Calgary real estate market not pretty, but not a disaster

THINK OUTSIDE THE BOX:  When looking at past oil cycles vs real estate markets, today’s Calgary real estate market is performing exactly as expected.

The Calgary real estate market is being watched today by more analysts than ever before.  Some are hoping for a big dramatic fall, some are hoping it stays alive.  However the truth are 6 factors that, when combined, give a much clearer picture on the health of the market.  Frankly, it isn’t pretty, but it sure isn’t a disaster.  In fact, when looking at past oil cycles vs real estate markets, today’s Calgary real estate market is performing exactly as expected as we hit the end of May 2015. The month that marks 9-10 of oil price drop from peak.

This 9 – 12 month mark has always been a significant point in the Calgary real estate market. The months where reality has historically returned to the market.

Given the recent release of market numbers for May 2015 Calgary Real Estate market, here are the significant points that observers, buyers and sellers should pay close attention to now:

Price Stubbornness. Average sale prices (on a year vs year basis) still continue to be approximately flat. This is actually to be expected.  Why? Simply because those who listed in a panic when oil began to drop (especially those who listed in December and January) have been refusing to lower their ‘expected’ prices. They were not willing to budge downwards, even when a willing buyer came along. In fact they even held their prices as competition heated up and number of active listings skyrocketed. This stubbornness in asking price has so far helped to protect the downside of average sale price however:

Buyer patience. As you can see by the statistics (http://www.creb.com/) , the number of sales/transactions is down significantly from the year before as buyers have sat back waiting for 2 key occurrences. The first one they are waiting on is for sellers to start getting a little more desperate and therefore move their expected sale prices down dramatically (see stubbornness above) . This desperation yet arrived (except in a small segment of the market, especially luxury).  The second occurrence the buyers are looking for is some sense of stability to arise in the oil and gas industry and to date this has not occurred.  Buyers have traditionally been more patient than sellers and so the waiting game continues, so sales should continue to be lower than last year even in the traditionally busy summer season.

Low Vacancy Rate. An added component that is protecting the downside of the market, and a factor most are ignoring, is the importance on the resale market of Calgary’s very low vacancy rates and high rents. A seller, no matter how desperate they are to sell, still need an affordable (and more importantly, available) place to move their family to. The majority of sellers are NOT leaving Calgary region, they just want to reduce their exposure to the housing market. The fact that is holding some back from selling quickly is that, in many case, appropriate rentals are not available or not available at an affordable (i.e. lower than their mortgage payment) rent.  The housing market is NOT like the stock market where you get in and out – the housing market is just that housing, so the move post-sell comes into play for sellers.

New Listings Drop. In the latest figures, (http://www.creb.com/) we are witnessing the reality of the thee components above. NEW listings have dropped significantly (y vs y) an indication that the ‘panic’ sellers listed early (Dec Jan Feb) and the rest of the market is just sitting back and looking for clarity.  This, combined with buyers also sitting on the sidelines are reflect in the May and April numbers of “Current Listings” which are significantly higher than historic because it reflects those ‘panic listers’ continue with their price stubbornness and lack of rental accommodations.

Listings To Begin To Expire AND Reappear. We can expect those December and January panic listings to begin to expire (as many are 6 month listing contracts) in June and July. This expiration of listings leads to what, later in the year ,will look like a large increase in ‘new listings’ as many of these properties are re-priced and re-listed.  The re-listing moment is also the trigger for lower average sale prices. So watch for the reappearance of these properties as an indicator of future lower average sale prices for the Calgary Real Estate market as a whole.

Provincial Election Results We are also witnessing the reluctance of the buyers to enter the market post the election win by the NDP.  A whole new government sets a whole new tone – eventually. The election campaign AND the result has thrown a new wrench into the system and the “Number of Sales” numbers show it. This is also to be expected because, on top of sellers not willing to make significant price concessions, the election campaign added a lot more  ‘confusion’ to the market and as is true in all market conditions A Confused Mind Prefers To Say No as it is the safest route.  The next 6 months will continue to be filled with political confusion as the new government sets policy, especially in the important industries of the province. This confusion will not add any confidence to the buyers, thus delaying their entry into the market further.

Conclusion and Something Positive To Watch For

The Calgary market is performing exactly as expected (and to our forecast in January) given that the two largest influencers in play can both be tagged as ‘confusion.’

Oil Price Instability: When will Oil prices find their foundation and at what price will that be. Price and time are the important economic issues that underpin the strong in-migration to the province of Alberta which supports a strong and vital Calgary real estate market. Right now, confusion exists

The First 6 Months of NDP Government: Everyone is looking for clarity on what policies and announcements will the new government make in their first 6 months to provide stability and confidence to businesses, citizens and industry. The more clear the government gets, the lower the influence the rumour-mongers will have on the confidence of Albertans. When confidence increases, the potential buyers can decide when to enter the real estate market and therefore prop up the demand side of the Calgary real estate market.  Post election, the confidence is low because the clarity is low and therefore buyers continue to sit and wait.

A Strategic Investor Opportunity to Watch in Wards 7,8,9,11

One significant addition to the above commentary could prove to be a real positive for the strategic investor in the Calgary real estate market. The proposed Secondary Suite bylaws for Wards 7,8,9,11 (http://www.calgary.ca/PDA/pd/Pages/Calgary-Land-Use-bylaw-1P2007/Secondary-Suite-Bylaw-Amendments.aspx) could prove a catalyst to sales increases. Properties in these zones that fit the criteria for addition of Secondary Suites will see a positive resurgence in demand as the addition of a renter (rental income) allows a buyer to afford homes in these wards. It will also assist to slowly relieve pressure on the vacancy rate in the city, which will have a ripple effect on the resale housing market.  So not only is this good policy, it will have the unintended consequences of reinvigorating a segment of the market.

Don Campbell  Beacon News  June 1, 2015

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