Calgary housing market expected to stabilize in 2023

The Calgary Real Estate Board (CREB®) has released its 2023 Forecast Calgary and Region Yearly Outlook Report. The report, which is prepared by CREB® Chief Economist Ann-Marie Lurie, provides a detailed analysis of the economic and housing market trends in Calgary and surrounding areas for the upcoming year.

According to the report, elevated lending rates are expected to weigh on sales in 2023, bringing levels down from the record high in 2022. However, with forecasted sales of 25,921 in 2023, levels are still expected to be higher than the activity reported before the pandemic.

“Higher commodity prices, recent job growth, record high migration and relative affordability are expected to help offset some of the impacts higher lending rates are having on housing demand. At the same time, we are entering the year with low supply levels which are expected to prevent significant price declines in our market,” said Lurie.

Supply levels declined to the lowest levels seen in over a decade as gains in higher price properties did not offset the supply declines occurring in lower-priced homes. This has left our market in a situation where lower-priced properties still face sellers’ market conditions while higher-priced homes are seeing more balanced to buyers’ market conditions.

The shift between supply and sales by price ranges is expected to create divergent trends in prices depending on property type and price range. Overall, price declines in the upper end of the market are expected to offset gains reported in the lower ranges, causing an annual decline of less than one per cent.

“With much of the pandemic behind us, 2023 reflects more of an adjustment into more typical conditions and a pause on price gains following 12 per cent growth in 2022. While other markets in the country are forecasted to see more significant price and sale declines in 2023, Calgary did not face the same gains as those markets, as prices only recovered from the 2014 highs in 2021,” added Lurie.

CREB® Economic Analysis

More people are moving to Calgary area than anywhere else on Prairies

The Calgary metropolitan area’s population — which includes the City of Calgary and smaller communities such as Airdrie, Chestermere and Cochrane — crossed 1.6 million people in 2022

Calgary and its surrounding communities rank as the fastest-growing area in the Prairies, according to newly released Statistics Canada data.

The agency said the Calgary metropolitan area grew by 3.1 per cent between July 1, 2021, and July 1, 2022, the 13th-highest such rate across Canada.

The region, which encompasses the City of Calgary as well as some bedroom communities, including Airdrie, Chestermere and Cochrane, now has an estimated population of 1,608,342, up from 1,558,588 the previous year.

The growth is much-needed as the city continues to contend with a labour shortage, said Calgary Chamber of Commerce president and CEO Deborah Yedlin. That group found in a fall report 31.5 per cent of city businesses are concerned about gaps in workers.

“Obviously, people are seeing Calgary as a city of economic opportunity, that they can find employment that’s meaningful and that they can afford to live here,” Yedlin said.

“It’s great news for Calgary, great news for companies and great news for the labour situation, so hopefully it continues.”

The Calgary Metropolitan Region Board celebrated the growth, saying the gains are a testament to a high quality of life in and around the city.

That board is responsible for supporting the long-term sustainability of the region, which includes developing and implementing a growth plan.

Its current plan forecasts the Calgary region will have 2.46 million residents by 2048, with the city itself passing the two-million mark.

“We’re trying to grow more sustainably, focus our growth in ways that will save taxpayer dollars and have a lower environmental footprint, lower water use, less agricultural land used up, and have thoughtful planning around thinking like transit, recreation, police,” said Clark.

“Regional planning is a long-term process, but we’ve already seen some really positive results.”

BILD Calgary, an industry group representing local land developers, said strong growth out of the COVID-19 pandemic is welcomed but does come with some challenges in maintaining sufficient housing stock.

“When COVID hit, all expectations at that time was that it would continue to be slow, but it didn’t. It was pretty much the opposite,” said BILD CEO Brian Hahn.

“Calgary remains one of the most affordable metropolitan regions in Canada to buy a home … That’s driving, certainly, some of the growth from outside of Alberta to our community.”

In its report, Statistics Canada said the country’s large urban areas saw a population rebound in the past year, with many experiencing their highest growth rates in two decades. Canada as a whole grew by 2.1 per cent during the period, a 573,604-person increase as the country’s population now crests 39 million.

It’s a trend largely driven by immigration, with Canada’s population growing by 657,833 from international migration alone, the greatest such increase since 1971–72 — growth that corresponds to fewer COVID-19 restrictions, increased immigration targets from Ottawa and the acceptance of people fleeing Russia’s invasion of Ukraine. The Calgary region welcomed 25,622 immigrants in 2021–22.

“Net international migration to Canada was up substantially, even when compared to the pre-pandemic period,” Statistics Canada said.

All regions of Alberta saw net population gains from interprovincial migration.

Banff was Canada’s second-fastest growing urban area, with a 7.5 per cent increase. Didsbury and St. Paul had among Canada’s highest rates of population decrease, at 2.5 per cent each.

Growth was highest in Atlantic Canada, with the Moncton and Halifax areas topping the list with 5.4 per cent and 4.5 per cent population growth, respectively.

Alberta had the five fastest-growing regions in the Prairies, with Canmore, Sylvan Lake, Edmonton and Lethbridge joining Calgary on that list. Outside of Alberta, Saskatoon — the 33rd-fastest-growing region in Canada — ranks highest in the Prairies.

Of Canada’s 12 regions that saw population decline in the last year, four were in Saskatchewan. That includes Estevan, whose 1.1 per cent population drop was the second-highest decrease in the country.

-Calgary Herald

How’s the Market

While week over week showings have dwindled these past few weeks, sales remain strong considering the time of year. 

The first two weeks of December resulted in the third best start to the month for total transactions over the past decade during the same time period. The active listing inventory levels continue to drop, but remain higher than years prior to 2017. Looking back at the months of inventory over the past ten years in Alberta, the average was 7.6 months of inventory in December. We are currently sitting slightly higher than that which suggests that the market is slowing down. 

With less showings occurring, we are seeing a higher percentage of showings result in a transaction which means serious buyers are still looking. 

-Steven Phillips, CIR Realty

Bank of Canada increases policy interest rate by 50 basis points, continues quantitative tightening

The Bank of Canada today increased its target for the overnight rate to 4¼%, with the Bank Rate at 4½% and the deposit rate at 4¼%. The Bank is also continuing its policy of quantitative tightening.

Inflation around the world remains high and broadly based. Global economic growth is slowing, although it is proving more resilient than was expected at the time of the October Monetary Policy Report (MPR). In the United States, the economy is weakening but consumption continues to be solid and the labour market remains overheated. The gradual easing of global supply bottlenecks continues, although further progress could be disrupted by geopolitical events.

In Canada, GDP growth in the third quarter was stronger than expected, and the economy continued to operate in excess demand. Canada’s labour market remains tight, with unemployment near historic lows. While commodity exports have been strong, there is growing evidence that tighter monetary policy is restraining domestic demand: consumption moderated in the third quarter, and housing market activity continues to decline. Overall, the data since the October MPR support the Bank’s outlook that growth will essentially stall through the end of this year and the first half of next year.

CPI inflation remained at 6.9% in October, with many of the goods and services Canadians regularly buy showing large price increases. Measures of core inflation remain around 5%. Three-month rates of change in core inflation have come down, an early indicator that price pressures may be losing momentum. However, inflation is still too high and short-term inflation expectations remain elevated. The longer that consumers and businesses expect inflation to be above the target, the greater the risk that elevated inflation becomes entrenched.

Looking ahead, Governing Council will be considering whether the policy interest rate needs to rise further to bring supply and demand back into balance and return inflation to target. Governing Council continues to assess how tighter monetary policy is working to slow demand, how supply challenges are resolving, and how inflation and inflation expectations are responding. Quantitative tightening is complementing increases in the policy rate. We are resolute in our commitment to achieving the 2% inflation target and restoring price stability for Canadians.

-Bank of Canada

HOW’S THE MARKET

After what was one of Alberta’s strongest Novembers on record for sales, we are heading into December with the lowest inventory levels in November since 2005!

The migration into Alberta continues as the population has grown to 4,543,111 which is just about 100,000 more people since the third quarter of 2021. This is putting pressure on the rental market with inventory levels well below the same time as last year, and rent prices climbing as a result. The affordability of housing compared to other major cities in Canada, along with the opportunity for jobs is continuing to keep our Province as a major draw for people to move to.

Looking back at sales in Alberta over the top five Novembers in the past ten years, the sales volume dropped through December and January, recovering to numbers higher than Novembers sales in February of the New Year. The listing inventory for those same years also dropped through December to February, recovering to higher inventories by March the following year. Over the past decade, 50% of time the average price across Alberta dropped from November through to January and then recovered to a higher average price in February than what was recorded the November prior. In that same decade, there were two years where prices increased by January, one year was in March and the other in May.

ALBERTA SHOWINGS

When we look at the showings for listings across the Province, the trends show that sellers may get one more uptick of activity this coming weekend before the Holiday slow down occurs. 

CIR REALTY SHOWINGS

The showings at CIR Realty’s listings are also showing slowing activity but the inventory under $300,000 had an increase of activity. This is likely due to higher interest rates forcing buyers to explore lower price ranges. The showings resulting in transactions is still higher than average for the year sitting around 18%, but that number is dropping week over week.

Summary

Based on all of the information above, it is reasonable to conclude that if sellers want to sell in the coming months they will need to have a compelling price for buyers. If there is a time for buyers to take advantage of lowering price points, it will likely be in December and January as markets move into balanced and in some cases, buyers markets. But we anticipate sales to increase from February through Spring with the caveat being how low the listing inventory gets as we normally don’t see listings start to climb higher until March. Without inventory, we may see lower sales numbers for longer which will keep more competitive conditions in the market. 

With population increasing, rentals being competitive, sales remaining strong and low inventory levels, it is setting us up for a competitive Spring Market in the New Year.

-Steve Phillips, CIR Realty

Canada’s slumping housing market weighs on Home Capital’s loans

The tumult in Canada’s housing market is starting to take its toll on lenders, with Home Capital Group Inc. reporting a plunge in third-quarter originations.

Home Capital, which lends largely to borrowers considered somewhat riskier than prime customers, said Tuesday that single-family mortgage originations plummeted 28 per cent from a year earlier. The lender’s so-called Alt-A borrowers include self-employed workers or those who are new to Canada and don’t have extensive credit histories. Total mortgage originations fell 23 per cent to $1.85 billion (US$1.38 billion), missing the $2.5 billion estimate of Royal Bank of Canada analyst Geoffrey Kwan. 

Sales activity in Canada’s housing market has slowed, with transactions down 32 per cent in September from a year earlier, as the Bank of Canada’s aggressive rate-hiking campaign ratchets up mortgage costs. Prices have fallen for seven straight months, and are down almost 9 per cent from their peak.

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The market spiral had yet to make its way to lenders’ results, with Canada’s biggest banks all reporting growth in their mortgage books in their most recent earnings. Home Capital’s results provide a window into a segment of borrowers who are considered riskier than those the big banks typically take on, and therefore pay more to borrow.

“The housing market is currently in a period of transition as buyers and sellers adjust to a higher-interest-rate environment,” Home Capital Chief Executive Officer Yousry Bissada said in a statement, adding that the Toronto-based company expects “softer market conditions to persist in the near term.”

The drop in originations contributed to Home Capital’s net income falling 43 per cent to $31 million, or 77 cents a share. Excluding some items, profit was 95 cents a share, matching analysts’ estimates.

Home Capital’s shares fell 4.8 per cent to $25.23 at 10:32 a.m. in Toronto, bringing their decline this year to 35 per cent. That’s the fourth-worst performance in the 29-company S&P/TSX Financials Index. 

Despite the market turmoil, Home Capital’s borrowers have continued to make payments on their mortgages. Net non-performing loans accounted for 0.16 per cent of gross loans last quarter. That compares with 0.15 per cent a year earlier and 0.47 per cent in the same period in 2020.

-Bloomberg

Winter Checklist

  • Check and clean or replace furnace air filters each month during the heating season. Ventilation systems, such as heat recovery ventilator filters, should be checked every two months.
  • After consulting your hot water tank owner’s manual, drain off a dishpan full of water from the clean-out valve at the bottom of your hot water tank to control sediment and maintain efficiency.
  • Clean your humidifier two or three times during the winter season.
  • Vacuum bathroom fan grills to ensure proper ventilation.
  • Vacuum fire and smoke detectors, as dust or spiderwebs can prevent them from functioning.
  • Vacuum radiator grills on the back of refrigerators and freezers, and empty and clean drip trays.
  • Check gauges on all fire extinguishers, and recharge or replace as necessary.
  • Check fire escape routes, door and window locks and hardware, and lighting around the home’s exterior. Ensure your family has good security habits.
  • Check the basement floor drain to ensure the trap contains water. Refill with water if necessary.
  • Monitor your home for excessive moisture levels – for instance, since condensation on your windows can cause significant damage over time and pose serious health problems, this requires corrective action.
  • Check all faucets for signs of dripping and change washers as needed. Faucets requiring frequent replacement of washers may be in need of repair or replacement.
  • If you have a plumbing fixture that’s not used frequently, such as a laundry tub or spare bathroom sink, tub or shower stall, briefly run some water to keep water in the trap.
  • Clean drains in the dishwasher, sinks, bathtubs and shower stalls.
  • Test plumbing shut-off valves to ensure they’re working and to prevent them from seizing.
  • Examine windows and doors for ice accumulation or cold air leaks. If found, make a note for repair or replacement in the spring.
  • Examine attic for frost accumulation. Check roof for ice dams or icicles. If there’s excessive frost or staining of the underside of the roof, or ice dams on the roof surface, be sure to have an expert look into the issue.
  • Check electrical cords, plugs and outlets for all indoor and outdoor seasonal lights to ensure fire safety. If showing signs of wear, or if plugs/cords feel warm, replace immediately.

Bank of Canada expected to raise interest rates on Wednesday as recession fears grow

Even as warnings about a potential recession grow louder, the Bank of Canada is expected to announce another hefty interest rate hike on Wednesday, edging the bank closer to the end of one of the fastest monetary policy tightening cycles in its history.  

RBC senior economist Nathan Janzen says it’s a coin toss between the Bank of Canada choosing to raise its key interest rate by half a percentage point or three-quarters of a percentage point, though RBC is leaning toward the smaller increase. 

“It’s pretty clear that more aggressive interest rate hikes are still warranted,” Janzen said. 

Wednesday’s announcement would make it the sixth consecutive time the Bank of Canada raises interest rates this year in response to decades-high inflation. It also comes amid growing fears that a recession is looming. 

Last week, Finance Minister Chrystia Freeland shifted her tone on the economy from her usual praises of Canada’s strong pandemic economic recovery. She warned tough times are ahead for Canadians. 

“Mortgage payments will rise. Business will no longer be booming,” Freeland said. “Our unemployment rate will no longer be at its record low.”

As well as the interest rate decision, the Bank of Canada will also release updated economic projections on Wednesday in its latest quarterly monetary policy report. The central bank’s outlook on inflation will be key to its plans for any additional rate hikes to come.

Since March, the Bank of Canada has raised its key interest rate from 0.25 to 3.25 per cent, feeding into higher borrowing costs for Canadians and businesses.

And although inflation has been slowing in recent months thanks to tumbling gas prices, the central bank has made it clear it doesn’t believe its job is done just yet.   

“Simply put, there is more to be done,” Bank of Canada governor Tiff Macklem said during a speech in Halifax on Oct. 6.  

As the Bank of Canada raises interest rates to bring inflation back to its two per cent target, officials at the central bank have expressed concern about how high inflation still is and its impact on consumer and business expectations for future inflation.  

In September, the annual inflation rate slowed to 6.9 per cent, though the bank’s preferred core measures of inflation, which tend to be less volatile, were unchanged from August. 

Grocery prices also continued to climb, with the cost of food up a staggering 11.4 per cent compared with a year ago.

There is some good news for the Bank of Canada on the inflation expectations front. Its recent business outlook survey showed businesses expect wages and prices to rise more slowly as their overall inflation expectations have eased. 

The good news, however, won’t be enough to dissuade the bank from another sizable rate hike, Janzen said.  

“There are some indicators that we’re past peak inflation rates. It’s just those inflation rates are still too high, currently, and still way too broad right now to prevent additional interest rate increases,” Janzen said.  

Most commercial banks expect one more interest rate hike after October before the bank hits pause on one of its most aggressive rate-hiking cycles in history.  

The effect of these rate hikes is expected to be felt more broadly in the economy next year as Canadians and businesses adjust their spending.  

While there is some division among economists on how severe the impending economic slowdown will be, many economists estimate the chances of a recession have grown.  

Recent surveys from the Bank of Canada reveal most Canadians and businesses also believe a recession is on the way. 

However, many economists have highlighted that Canada’s tight labour market might serve as a buffer during an economic downturn. In September, the unemployment rate was 5.2 per cent, which is considered to be quite low. 

Although the Bank of Canada has previously spoken about aiming for a “soft landing,” where inflation comes down without triggering a serious economic slowdown, Macklem said in recent weeks that the primary goal of the bank is to restore price stability.  

That commitment has sparked worries in labour groups, which have come out against the aggressive rate-hiking path over concerns about the potential impact of a recession on employment.  

A new report by the Centre for Future Work in collaboration with the Canadian Labour Congress is calling on the Bank of Canada to pause its rate hikes until it can assess the impact of previous interest rate increases on the economy.  

“After three years of dealing with both the health and the economic consequences of an unprecedented pandemic, the last thing Canadians can tolerate is another recession,” the report by Jim Stanford reads.  

Stanford, an economist and the director of the Centre for Future Work, makes the case in the report for a different approach to addressing high inflation.  

Instead of continuing along the path of higher interest rates, Stanford recommends the Bank of Canada balance its goal of restoring low and stable inflation with promoting economic growth and maintaining employment.  

In the report, Stanford also calls on the federal government to play a more active role in fighting inflation by exploring options such as tax increases on high-income earners and windfall taxes on profitable corporations.  

What ‘higher and faster’ Bank of Canada rate hikes could mean for home

The Bank of Canada’s move to hike its policy rate by 50 basis points Wednesday will be quickly noticed by variable-rate mortgage holders and Canadians holding a home equity line of credit, but if inflation persists and rates have to rise more quickly — something the central bank’s chief acknowledged was a possibility — the effects are not likely to stop there.

“Higher and faster rate hikes will affect mortgage affordability for a significant population of homebuyers,” RatesDotCA mortgage agent Sung Lee told the Financial Post in an e-mail. “Major banks have already pushed fixed rates higher several times over the past few weeks with some approaching the four per cent mark for uninsured products.”

The Royal Bank of Canada and Toronto-Dominion Bank were the first of the Big Six to react to the shifting interest rate environment, lifting their prime rates by 50 basis points to 3.20 per cent starting on Thursday, with Scotiabank and CIBC quickly following suit.

But the ripples from the rate increase could extend beyond mortgage carrying costs.

James Laird, co-founder of Ratehub.ca, noted that higher mortgage rates are expected to put downward pressure on home prices across the country. The national average price of a home reached $816,720 in February, according to figures from the Canadian Real Estate Association.

And here could be more pressure weighing on Canadian home owners as Bank of Canada Governor Tiff Macklem said he was prepared to get more aggressive with interest rate policy depending on how the economy recovers and how the outlook for inflation, which stood at a 30-year high of 5.7 per cent in February readings, evolves.

“If demand responds quickly to higher rates and inflationary pressures moderate, it may be appropriate to pause our tightening once we get closer to the neutral rate and take stock,” Macklem told reporters during a Wednesday press conference. “On the other hand, we may need to take rates modestly above neutral for a period to bring demand and supply back into balance and inflation back to target.”

The Bank of Canada estimates that a neutral rate stands between two per cent and three per cent. Macklem suggested the benchmark rate could rise above that range, potentially taking the overnight rate to 3.25 per cent.

“Rates are going up this year, but we do not know what next year will bring. This creates a bit of a roller coaster experience for current and would-be homeowners,” wrote Leah Zlatkin, a licensed mortgage broker at LowestRates.ca. “These increased costs have a real impact on homeowners’ wallets. Some variable rate holders may think about switching to a fixed rate to bring some stability to their outlook, but anyone with variable rate will still be saving money over a fixed rate right now.”

Zlatkin added that if the Bank of Canada raises interest rates as much as 150 more basis points over the course of the year, it would bring prime rates to around 4.7 per cent.

“There is a whole cohort of home owners that have never experienced a mortgage rate over four per cent,” Allison Van Rooijen, vice-president of consumer credit at Canadian credit union Meridian, told the Financial Post. “It’s been so long since rates have been at the four per cent or higher range, and we’re starting to see that increase now on the fixed rate side and we expect it’s going to continue to persist.”

Van Rooijen added that the good news is lenders typically look for financial resiliency with their clients and ensure borrowers can withstand rate increases. However, if mortgage holders are beginning to feel a pinch in their monthly expenses, it could be time to seek out professional help and weigh their options.

“There has been a ton of innovation in in the mortgage space and the debt consolidation space even in the last five years,” Van Rooijen said. “There may be solutions borrowers aren’t aware of at this point in time that can help them before things get worse or before rates go up to a point that they’re really pinched.”

-Steph Huges, Calgary Herald