Sticker shock: Calgary new home price increases the highest in Canada, by a lot – 7.6% hike from last year

The rate of new home price growth in the Calgary region is far exceeding the rest of the country.

Statistics Canada reported Thursday that the New Housing Price Index was up 7.6 per cent in April from a year ago in the Calgary census metropolitan area – the best in the nation.

Throughout Canada, year-over-year price growth was 1.6 per cent.

On a monthly basis, prices were up 0.6 per cent in the Calgary area while they rose by 0.2 per cent in Canada.

The federal agency said new home prices rose in Calgary “as builders reported higher material and labour costs, market conditions and an increase in the cost of developed land.”

“Price increases in the census metropolitan area (CMA) of Calgary have been slowing since the start of 2014,” it said.

 

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The tight rental market in Alberta’s urban centres has eased this year but the overall vacancy rate still remains low. The Spring Rental Market survey, released by Canada Mortgage and Housing Corp. on Wednesday, said the rental apartment vacancy rate was 1.8 per cent in April compared with 1.5 per cent in April 2013. “Rising demand in recent years has encouraged new rental construction in Alberta, which has added to the supply of rental apartments. These additions helped to offset increased rental demand through net migration, resulting in a stable vacancy rate in April 2014,” said Lai Sing Louie, regional economist for the Prairie and Territories Region for the CMHC, in a news release. On the basis of a sample of structures common to both the 2013 and 2014 surveys, the average rent for a two-bedroom apartment rose 5.5 per cent in Alberta, said the agency. In Calgary, same sample rents for a two-bedroom apartment increased five per cent from April 2013 to April 2014. Meanwhile in Edmonton, same sample rents rose by 6.4 per cent. The continued low rental vacancies in Alberta’s two largest markets prompted the increase in same sample rents, said CMHC. It said an average two-bedroom apartment in Calgary in new and existing structures rented for $1,267 in April. In Edmonton, the average two-bedroom apartment rent in April was $1,180 per month. The highest rent among Alberta’s urban centres was in Wood Buffalo where an average two-bedroom apartment rented for $2,061 in April. Medicine Hat maintained the lowest average two-bedroom rent at $739 per month

CMHC said the lowest vacancy rate in Alberta was zero per cent in Canmore. Vacancies in Wood Buffalo were the highest in the province at seven per cent. Both Calgary and Edmonton reported low vacancy rates in April of 1.4 per cent. In Calgary, the vacancy rate increased from 1.2 per cent in April 2013. Richard Cho, senior market analyst in Calgary for the CMHC, said the vacancy rate in Calgary was as low as 0.5 per cent back in 2007. “Rental demand in Calgary is getting a strong boost from elevated migration,” he said. “Net migration posted a new high in 2013 following a record year in 2012. We did see the vacancy rate edge higher compared to the previous year. Competition from the secondary rental market and movement into homeownership contributed to the increase in the vacancy rate. Despite the slight gain, the vacancy rate in Calgary is still relatively low. “We are anticipating the vacancy rate to remain near current levels. Our vacancy rate forecast for October 2014 is 1.2 per cent, up from 1.0 per cent in the same month a year earlier.”

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Calgary region single-detached home construction on the rise

The Calgary region saw housing starts for single-detached homes increase in May compared with a year ago while multi-family projects dropped.

Canada Mortgage and Housing Corp. data released Monday revealed there were 606 single-detached starts in the month for the Calgary census metropolitan area, which was up 8.4 per cent. However, the multi-family sector experienced a decline of 18.3 per cent to 424 units.

“It isn’t uncommon to see pronounced changes in multi-family starts from month to month. This is mainly due to the apartment segment. Once the foundation is poured for an apartment building, all the residential units in that building are immediately recorded as a start,” said Richard Cho, senior market analyst in Calgary for the CMHC.

“Single-detached construction has increased this year. The economy in Calgary continues to support housing demand with impressive gains in employment and strong migration. Rising incomes and relatively-low mortgage rates have also provided buyers an opportunity to purchase a home. Declines in single-detached inventories along with active listings has prompted more new construction as well.”

Total starts in the region were down 4.5 per cent from a year ago to 1,030 units.

On a year-to-date basis, single-detached starts are up by 6.5 per cent to 2,696 while multi-family starts have increased by 97.8 per cent to 4,191 compared with the same period a year ago. Total starts year-to-date have risen by 48.1 per cent to 6,887 units.

CMHC said housing starts in the Calgary CMA were trending at 15,776 units in May compared with 17,239 in April. The trend is a six-month moving average of the monthly seasonally-adjusted annual rates of total housing starts.

Nationally, Canadian homebuilding activity has firmed up after a volatile winter, said Robert Kavcic, senior economist with BMO Capital Markets.

Canadian housing starts in May rose to a stronger-than-expected 198,300 annualized units, from 196,700 in April.

“There are still many signs that the Canadian housing market may be moderately overbuilt,” said Diana Petramala, economist with TD Economics. “The number of condos for sale in the existing home market has increased considerably faster than demand in Ottawa, Montreal, Quebec City, Toronto, Edmonton, Regina and Saskatoon. The number of newly built and unabsorbed units is starting to stabilize, but at historically high levels. Meanwhile, the number of new homes under construction is at an all-time high.

“Looking past this near-term volatility, housing starts are expected to continue to trend down to 170,000 to 175,000 units, a pace that is more in line with household formation, as the housing market works through the elevated number of condos for sale.”

 

CMHC no longer offering mortgage insurance for luxury homes Also cutting insurance to loans to finance condo projects

Canada Mortgage and Housing Corp. says it will no longer offer mortgage insurance for homes that cost $1 million or more, starting July 31, even if the buyer has made a deposit of 20 per cent or more.

It also announced on Friday that it will no longer insure loans that are used to finance construction of multi-unit condominium projects, effective immediately.

“CMHC helps Canadians meet their housing needs and contributes to the stability of the housing market and finance system,” said Steven Mennill, senior vice-president of insurance, said in a statement. “The changes announced as part of the review ensure that CMHC’s products and services are aligned with these objectives.”

In Calgary, luxury home sales for the MLS market, for properties of more than $1 million, were 359 year-to-date until the end of May, representing three per cent of total sales activity. For the same period a year ago, there were 318 sales, still equating to three per cent of total sales.

Last year, a record was set with 727 MLS sales in the luxury bracket, representing 3.1 per cent of all residential sales in the city, according to the Calgary Real Estate Board.

“Consumers were already required to have 20 per cent down for million plus homes, and insurance was not required for these properties,” said Ann-Marie Lurie, chief economist with CREB. “However, some lending institutions would still buy insurance for these properties. The impact will ultimately depend on the banking industry and if they will adjust lending requirements given that the low-ratio insurance product is no longer available.

“This is still a fairly small portion of the market in Calgary, and at this point I would not expect any significant changes in sales to occur in our market.”

The share of properties over $1 million to total sales in the City of Calgary over the years include 2.57 per cent in 2012, 2.41 per cent in 2011, 2.12 per cent in 2010, 1.63 per cent in 2009, and 1.93 per cent in 2008.

Two years ago then federal finance minister Jim Flaherty announced that CMHC would stop insuring mortgages on homes worth $1 million or more if the buyer borrowed more than 80 per cent of the value.

CMHC said its mortgage loan insurance for condo buyers isn’t affected by the change in multi-unit condo construction.

“The changes are a business decision designed to increase market discipline in residential lending while reducing taxpayers’ exposure to the housing sector through CMHC,” said the agency. “They also support the government’s continued efforts to adjust the housing finance framework to restrain growth of taxpayer-backed mortgage insurance, as noted in Economic Action Plan 2014. They are not changes to the government’s mortgage loan insurance parameters and do not apply to private mortgage insurers’ products and services.”

 

Warm weather helping recreational property sales

Sales activity in Canada’s recreational property market is beginning to pick up after a slow start to the year due to a harsh winter and delayed spring, says a new report released Thursday by Royal LePage.

The 2014 Recreational Property Report said a long and severe winter delayed the traditional spring buying season, but the arrival of waterfront-friendly weather has increased interest, is generating higher inventory levels and is driving sales activity.

Phil Soper, president and chief executive of Royal LePage Real Estate Services, said the recreational property market in eastern British Columbia – areas to Invermere, Salmon Arm and Fernie – have all picked up this spring.

“What our realtors are telling us in those regions is that the majority of buyers are from Alberta,” said Soper. “So with the general lift in consumer confidence in the province and the positive attitude you see reflected in the regular urban residential real estate market it seems to be spilling over into recreational markets and of course that would apply to Alberta recreational markets as well.”

In the middle of the last decade, there were record levels of sales activity in the recreational property market, driven largely by the retirement dreams of the Boomer generation but the subsequent economic downturn dampened demand in the sector, said Soper.

“Post-recession, our research found that incremental sales were driven largely by low interest rates and investors. With the 2014 market, we are seeing a return to primarily lifestyle-driven demand for cottages, cabins and chalets. Canadians continue to seek the opportunity to escape to a weekend retreat,” he said.

“Economic factors such as a stable job market, inexpensive mortgage financing and steadily improving consumer confidence remain supportive for purchasers considering recreational properties. Many Canadians dream of owning a country retreat to get away from the pressures of life in the city and the daily grind. The pursuit of a place to gather with family and friends is a notion that seems to be more attractive now than ever.”

Soper said that sharp rises in the price of recreational properties in U.S. regions favoured by Canadians, such as Arizona, Florida and California, coupled with a lower Canadian dollar relative to the American currency, is beginning to impact the Canadian recreational market.

“People who were previously wooed by bargain shopping for real estate south of the border are finding the real deals are now at home,” he said.

 

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Calgary building permit value soars in April 33.9% hike from previous month

 The total value of permits was up in 19 of the 34 Canadian census metropolitan areas in April, led by Calgary, London and Halifax, according to Statistics Canada. The federal agency reported Thursday that “Calgary posted the largest increase, as a result of higher construction intentions for institutional buildings, commercial structures and multi-family dwellings.” Permits in Calgary reached $597.6 million in April, up 33.9 per cent from March. However, on a year-over-year basis permits in the Calgary region were off by 23.2 per cent. In April, the residential component reached $318.9 million, up 19.57 per cent from March while the non-residential sector was $278.7 million, up 55.26 per cent from the previous month. “Residential building permits so far this year have moderated compared to the elevated level reached in 2013,” said Richard Cho, senior market analyst in Calgary for Canada Mortgage and Housing Corp. “As such, the heightened pace of new construction experienced in the last several months is not expected to be maintained. Total housing starts after four months were up 64 per cent from the previous year. While total housing starts in 2014 are forecast to rise, the gain will be less pronounced by the end of the year.” In Alberta, total permits of $1.3 billion were down 0.6 per cent on a monthly basis and off by 13.5 per cent year-over-year. The province saw its residential component rise however to $791.2 million, up 5.4 per cent from March and an increase of 6.0 per cent from last year. But the non-residential sector in the province dropped to $489.2 million, down 9.0 per cent month-over-month and a decrease of 33.3 per cent year-over-year. Nationally, total permits across the country reached $6.0 billion which represented a monthly jump of 1.1 per cent but a year-over-year decline of 13.4 per cent. In Canada, the residential sector saw permits valued at $3.7 billion. That was a two per cent increase from March but down 13.8 per cent from a year ago. The non-residential sector saw permit value drop by 0.4 per cent on a monthly basis and by 12.7 per cent on an annual basis to $2.3 billion. Nick Exarhos, of CIBC World Markets Economics, said Canadian building permits for April came in weaker than expected. He said the Canadian housing should still experience a bit of a pick up from the first quarter after the effects of the unseasonably cold weather roll off.

Calgary housing affordability falls short, say experts

Lined up against similar markets, housing affordability in Calgary falls short, say industry members.

City policy related to land availability has been a concern expressed by many in the homebuilding and development businesses in Calgary in recent years. This subject and others related to residential growth in the city were part of a panel discussion at the Calgary Petroleum Club earlier this week.

When comparing markets, Brookfield Residential chief operating officer Trent Edwards says drawing a line between Calgary and Edmonton makes sense. “Edmonton has addressed the affordability side of things through providing supply — supplying competition and certainly leaving things more to the market there,” said Edwards.

“It’s really the same market,” said Edwards. He said the province’s two largest cities have comparable growth, the same number of jobs and similar pay. “It’s a much more fragmented market in Edmonton, but certainly every sector that you go into from a choice perspective, there is supply at all different levels, which makes it easier to buy a home there,” said Edwards.

Joining Edwards on the panel were: CEO of Cardel Group of Companies Ryan Ockey, Calgary Real Estate Board chief economist Ann-Marie Lurie, Urban Development Institute CEO Guy Huntingford, and planner with the City of Calgary Matthew Sheldrake.

“Let’s keep in perspective — (Calgary is) far more affordable than cities like Toronto, like Vancouver,” said Lurie. “First of all, our incomes are a lot higher than what they get in Toronto and Vancouver, and that helps our affordability.” She said a typical resale single-family home in Calgary sells for $478,000.

“That same single-family type home in Greater Vancouver is $957,000.”

Ockey said he thinks the housing industry’s top challenge going forward is affordability. He said five years ago, for every 10 deals written by his sales team, two or three would drop off because the customer couldn’t qualify for a mortgage.

“Today, we’re at 55 per cent of those people that write a contract with us and when they go for financing cannot qualify,” said Ockey.

Along with building in Calgary, Cardel builds in a variety of other centres, including Denver. He calls the two cities “very similar.”

“They’re close to the mountains, very entrepreneurial, white collar, highly educated, lots of income,” said Ockey.

“In Denver, I can put you in a 3,000-square-foot home with a triple garage and a mountain view for $350,000. In Calgary, that gets you a 1,400-square-foot townhouse with a single garage.”

Sheldrake called the city’s approach to growth a financial discussion and used the example that 30 new areas would generally call for the city to run 30 pipes and 30 transit lines. “If you have less than that, you have to run less of those services,” said Sheldrake. “There are issues with going too low, obviously, because you’re limiting choice. You could potentially be influencing prices, and I understand that.”

The city uses a prioritization model developed with criteria approved by city council that is used for sequencing growth. It includes measures such as access to transit, capacity of existing infrastructure, city-funded costs, readiness to proceed, proximity to employment opportunities, community services in place, land supply, innovation and contiguous growth.

“A lot of this discussion on growth management and limiting growth is about trying to find a balance between the amount of growth that is affordable for the city as a government but is also enough that the industry itself is going to compete with itself and innovate and offer choice to citizens,” said Sheldrake.

Ockey said he thinks market demand should drive what home builders offer and where they build.

“Let the consumer decide what kinds of product that we should build, where they want to live and not be dictating to them that they can only live in these particular areas or they must live downtown in a highrise,” Ockey said.

“We believe the market should decide rather than city policies and other political types of issues.”

His company builds single-family homes and multi-family developments mainly in suburban communities.

But it also has an inner-city division that builds in areas such as Altadore and Killarney.

“When we talk about letting the market decide, it’s also balanced against policy direction for the city that was developed in concert with all Calgarians,” said Sheldrake.

“Not just ones that are looking for a home, and it’s enshrined through the citizen satisfaction surveys — people who are looking for better transit service, looking for those rec centres, perks and things like that.”

Sheldrake said these services have a cost and require a critical mass of population. Those services aren’t always available in all areas and are often concentrated in the established areas of the city.

“We’re trying to bring people back to take advantage of those services.”

However, he adds, the city doesn’t have a one-for-one policy between inner-city and suburban development.

“We’re coming from a point where more than 100 per cent of the city’s population growth in a given year was located in new suburban areas,” says Sheldrake. “We’re really just trying to move that around a bit so the whole city is enjoying the benefits of growth.”

A restriction on the number of areas under development — no matter how large they may be — brings up a number of concerns for the local development industry, said Huntingford. One is that fewer communities will result in reduced competition.

“Especially if there is only a single developer that owns that land and is building,” he said, adding reduced competition will turn into a contraction of the industry and a hike in home prices.

“It’s a simple supply and demand issue,” said Huntingford.