Calgary’s red hot market: How long will it last?
The market is just as HOT as the weather is right now, but the real question is: How long will this boom market last? Interest rates have increased and the issue of housing affordability has dominated the headlines recently.
So, can we expect this trend to continue? Well, in this month’s update I am going to tell you all about how Calgary fared in July and what the outlook is for the rest of the year. And I’ll also delve into the politics behind all of the headlines, not only for Calgary, but for the Canadian landscape, as well. Okay, let’s go!
Well, as you might have guessed, Calgary’s real estate market set some more records in July, with the most sales and highest prices we’ve ever seen… again! Those of us that do these real estate market updates can often sound like a broken record, as each month it seems we are telling the same “high prices, hot market” story. Buuuut… this month is just a little bit different, and I’m going to tell you why.
But, first up, let’s discuss July. When you look at the whole market – averages across the four key categories tracked by the Calgary Real Estate Board – we see what we would expect, which is increased prices and sales across all segments. The ‘average’ price of an ‘average’ piece of real estate in Calgary is now $567,000, up about 6% from this time last year. Total sales are also up, with just over 2,600 properties trading hands over the course of July.
The real story to watch isn’t about prices and sales, though. It’s about the lack of inventory. There just isn’t anywhere near as much to buy, with inventory down by almost 35% from this time last year. Inventory is so low, in fact, that the current ‘Months of Supply’ metric – or the number of months it would take to sell every house currently available for sale – is set at 1.3. So, basically, a little over five weeks of inventory, which is incredibly low. This is very much in ‘sellers market’ territory, and I don’t think that’s likely to change any time soon.
Looking at each of the specific categories tracked by the Calgary Real Estate Board, Detached prices now average $690,000 and Apartment condos are less than half of that at $306,000. Semi Detached properties come in at about $617,000 and Row townhouses are at $400,000. All of these categories are hovering around 10% higher prices now than they were this time last year.
You might think that tight markets like this are good for our industry, but they actually present quite a few challenges because with fewer listings coming to market and with all of them flying off the shelves so fast it can be very challenging to make a move from one house to another. So, what do you do if you want to make a move? Do you wait it out for an easier market to trade in? Or do you need to jump right away? Well, to make your decision it might help to take a look at what is fueling the fire for our super-hot market in Calgary and across the country. We’ve seen some headlines recently that give us a bit of a sneak peek for how things are going to go at the federal level, which should trickle down to us regular Calgary consumers.
So, let’s start with the recent cabinet shuffle of senior ministers by Prime Minister Justin Trudeau. He moved a few players around and, most relevant to our discussion, we now have a new housing minister in Sean Fraser. Interestingly, Fraser is leaving behind the role of Immigration minister in order to step over to Housing, two factors very much related to the issue of housing affordability.
I bring this up because, as Immigration minister, Fraser presided over the largest single inflow of immigrants Canada has ever seen, when Canada added over one million new immigrants in 2022.
In fact, Canada’s population growth of 2.7% in 2022 ranks as one of the highest in the world, and puts us in the top 20 countries for overall growth with almost all of the countries higher than us being in Africa.
So, it should be no secret that the quickest way to calm our real estate market would be to slow down immigration and allow the development industry some breathing room to catch up to the supply levels needed to stabilize price growth. After all, more people means more demand for both rental and retail housing, right? Well, you can be sure that the new housing minister isn’t going to want to make himself look bad and call for a reduction in immigration to make it easier on him in his new job and, right out of the gate, we saw this confirmation when he said that “closing the door on newcomers is no solution to the housing crunch”.
This was supported by his boss, the prime minister, who put on this nice white hardhat and vest a few days ago to tour a construction site in Ontario and echoed his new housing minister’s messaging by pledging his support to increase supply.
So, the takeaway is that the key metric underpinning housing demand – more people moving into our country – is unlikely to change. Demand will stay strong and prices will continue to increase because it’s much easier to let someone into Canada than it is to build a home for them. Check out this graph I compiled from data available on the Statistics Canada website and the Canadian Real Estate Association. It shows that recent demand for housing has increased with significantly more immigration but, given the consistent supply coming from the construction industry, it means only one thing – increased prices.
For this to change, we will need all three orders of government to agree to solutions to accommodate such high levels of immigration. I think this is a tall order, indeed, given that electoral cycles differ from one level of government to the next and governments love to push problems around to one another. Canada has never before undertaken a truly united approach to housing reform and I’m just not convinced that we’re going to see that happen now.
So, we can expect tight markets and low inventory levels to continue for as long as immigration stays elevated to the extent it has been for the last few years.
Now, another issue affecting inventory and movement is interest rates. And we just saw another jump issued by the Bank of Canada a few weeks ago to bring the key lending rate right up to an even 5% in an attempt to slow down inflation and perhaps demand for expensive housing. But it just isn’t working, as we can see from this month’s sales statistics in Calgary. People value housing; they don’t expect prices to drop anytime soon and so they are agreeable to paying more and more money for their homes. And it makes financial sense, too – as long as prices increase at high single-digit rates, homeowner equity growth will outpace the debt Canadians take on to buy homes, which will keep the party going for years to come.
Payments are getting higher, though. There is no doubt about that. But will interest rates keep going up? Well, one fellow who’s opinion I value is CIBC economist Benjamin Tal, who suggested that the Bank of Canada wants to see interest rates come down before the loans taken out in 2020 and 2021 mature, as over half of all mortgages held were written in those post-pandemic years when the government issued a lot of free money and banks allowed homeowners to suspend payments and re-do their mortgages in the face of pandemic uncertainty. So, if you were thinking of trading up or buying a house, perhaps consider a variable rate mortgage so that you can take advantage of decreasing rates in a few year’s time.
Anyway, Calgary’s market is still very healthy. We currently sit at less than half the average sales prices of both Vancouver and Toronto, which gives us a competitive advantage for attracting more people and businesses to our city. I don’t think this is likely to change any time soon, either, so there’s a good bet you’ll see us again in a month’s time talking about record prices and record sales for our market.
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