Cracks are starting to appear in the once-solid Calgary residential real estate market.
Three separate reports, released Wednesday, all made mention of the potential negative impact that lower energy prices will have on the local resale housing sector this year.
The Calgary Real Estate Board is forecasting overall MLS sales to fall by four per cent “due to market uncertainty and changes in economic climate” but it says prices are expected to remain relatively stable with a modest increase of 1.6 per cent on an annual basis.
At its annual forecast breakfast on Wednesday, CREB warned there are multiple risk factors attached to the forecast, which estimates 24,503 MLS sales will take place in the city this year.
Prices for repeat home sales in Calgary fell by 1.1 per cent in December from November, according to the Teranet-National Bank National Composite House Price Index.
Also, a report by Royal LePage forecast a 2.4 per cent hike in prices in Calgary this year but the company’s president and chief executive, Phil Soper, said the natural slowing of home price appreciation will accelerate in the West due to recent developments in the energy sector.
Ann-Marie Lurie, CREB’s chief economist, said the housing risks lie mainly with employment levels and net migration, both of which can be more severely impacted by a prolonged period of weakness in the energy sector.
“There is also the impact that energy prices have on consumer confidence. If energy prices stay low throughout the year, concern regarding job stability could cause consumers to delay unnecessary changes regarding housing,” she said.
The CREB report said sales will remain consistent with long-term levels and 2014 sales were close to 15 per cent higher than the long-term trend.
“The economic situation is far better today than what is was in 2009, where the fallout of the financial crises resulted in a U.S. recession, weakness in energy sectors, a pullback in investment and ultimately job losses in Calgary,” said Lurie. “With economic indicators remaining more positive in this period, the pullback in housing is not expected to mirror activity during the 2009-2010 period.”
She said the initial impact is that the market will see a fall in demand but the overall market was tight as it moved into the current oil price environment.
“We were in seller’s market conditions. We had a lack of inventory. So even with demand falling and some improvements in supply, there is a lot of room to absorb there some of that increase that we’ll have and move us into really more normal conditions,” said Lurie. “I mean we’ve had a lack of inventory for some time.
“People in this city are used to this type of thing. We know what happens in the energy sector. The consumer confidence, what we’re concerned about is, if people are worried about will they have a job in the next year, two years, what will be their employment status, what are they facing, they’re less likely to make major purchase decisions like homes. That can pull off some of that demand in the market. So you could see some of those sales levels fall.”
Last year, total MLS sales in Calgary were up 9.3 per cent, at 25,664. The average sale price of $483,079 was 5.8 per cent higher than 2013. The local market also saw new peaks for condo apartment and townhouse sales. But as the year ended, the market was showing signs of shifting.
December marked the first month in nearly two years that MLS sales were down compared with previous-year numbers — breaking a string of 20 consecutive year-over-year gains. However, average sale prices rose for the 35th consecutive month. Total sales in December of 1,083 were down by 7.5 per cent from a year ago while the average price of $475,036 was up by 4.5 per cent.
“We have hit the six-month oil price decline market. This has traditionally been the moment when the low oil price begins to be reflected in the housing market. This is currently being reflected in the dramatic increase in number of listings shown in the CREB statistics,” said Don Campbell, senior analyst with the Real Estate Investment Network.
“This shift to a buyer’s market will then be reflected in average sale prices in February, March and April as they flatten or slide slightly into negative territory.”
According to CREB data, there were 275 sales for the period of Jan. 1 until Tuesday — down 29.1 per cent from the same period in 2014. The average sale price of $449,391 is down 3.9 per cent while the median price of $411,000 has risen by 1.1 per cent. New listings of 1,101 are up by 36.4 per cent and active listings of 3,695 have risen by 55.1 per cent.
“Calgary’s housing market tends to follow the ups and downs in oil prices. Given the recent collapse in oil prices being on order of magnitude similar to what was observed back in 2008-09, it’s possible that housing activity and prices might follow similar paths as back then,” said David Madani, economist with Capital Economics.
“Unfortunately, with household debts higher, interest rates already ultra low and government budgets tighter, policymakers have less scope to support the economy this time around.”
CREB president Corinne Lyall said buyers will likely have more alternatives in all price ranges, with more supply in the market expected this year.
Lyall said it was important to keep an eye on the economic indicators.
“I think the biggest concern right now is exactly . . . ‘should I be selling my house right now or not?’ I think the important thing to remember is that people sell for different reasons. Every motivation is different. I think they really have to think about that before they just decide to throw their house on the market. Do they really need to move?
“People are just asking ‘if I do have to move is now the right time or should I wait?’ They just want some advice from their real estate agents as to what direction to go really.”
The repeat home report said prices fell by 0.2 per cent in December across the country in 11 markets surveyed.
However, Calgary led the country with an 8.3 per cent year-over-year hike while the Canadian average spike was 4.9 per cent.
The index is estimated by tracking observed or registered home prices using data collected from public land registries. All dwellings that have been sold at least twice are considered in the calculation of the index.”
“The slump in world oil prices will hit oil-producing regions hard, and it won’t be long before housing activity and prices begin to fall significantly in Calgary,” said Madani.
Jonathan Bendiner, economist with TD Economics, said Calgary and Edmonton closed out 2014 with solid year-over-year gains but the recent plunge in oil prices is likely to temper housing activity in these markets this year.
“Indeed, the drop in oil prices is expected to weigh on employment and income growth in these markets over the near-term as the low oil price environment persists,” he said.
In releasing its house price survey and market survey forecast Wednesday, Royal LePage said the average price in Calgary will climb 2.4 per cent from 2014 to $472,000 while the Canadian average price will see a 2.9 per cent hike to $419,318.
Royal LePage said Calgary saw healthy price increases in all categories in the fourth quarter with average prices for detached bungalows jumping 9.1 per cent year-over-year to $511,889 and standard two-storey homes increasing 8.5 per cent to $500,320. Standard condominiums also experienced robust growth, rising 9.1 per cent to $311,644, it said.
“The Calgary market was one of the hottest in the country, with all three major housing categories seeing near double-digit price growth over this time last year,” said Ted Zaharko, broker and owner of Royal LePage Foothills. “There remains a structural imbalance between the availability of homes and number of eager homebuyers. This fundamental discrepancy between supply and demand explains why we’ve seen such aggressive price appreciation in 2014.
“While we expect price rises may moderate in 2015, the upward trend we’ve seen over the past few years is unlikely to reverse without a meaningful increase in inventory . . . Oil is a major economic influence in Calgary, so the recent price drop is worrying. While we believe there may be some immediate term impact on the local housing market in the form of slowed appreciation, there would need to be prolonged low oil prices for any spillover into the housing market to be significant.”