Housing shortage continues to drive up Calgary real estate prices

The Calgary Real Estate Board (CREB) reports that the average price of a single-family home in Calgary reached $636,167 in the first quarter of 2023, and is expected to continue to rise. CREB also predicts that there will be around 20,000 transactions in the year, but the rate of price growth should slow. The market is favoring sellers, and with a low level of inventory, buyers have to enter into a protracted one-upmanship procedure to get what they want. Inflation remains a dominant theme and population growth due to interprovincial migration is also influencing the market.

CREB’s chief

Calgary housing market sees March inventory hit 17-year low

The Calgary Real Estate Board reported that the city’s housing market had its lowest March inventory level in 17 years and home sales decreased by 40.6% annually in March. The benchmark residential home price increased by 1% annually and 2% monthly, creating market conditions that favor sellers. Migration is supporting demand, but low inventory levels are causing existing homeowners to be reluctant to list their homes due to difficulty finding an acceptable housing alternative and higher lending rates.

Calgary sets new April record as benchmark price hits $550,800

The Calgary Real Estate Board says the city set a new April record last month as the benchmark price of a home sold reached $550,800.

The Alberta board says the price amounts to a two per cent increase from March and a 1.19 per cent increase from a year ago.

The increase in the benchmark price came as the actual average price of a home sold in the city last month was $549,524, a roughly three per cent rise from a year ago.

The board says the number of sales tumbled almost 21 per cent to 2,690 over the same period, leaving the market with tighter conditions than were seen earlier in the year and when compared with April.

New listings fell nearly 32 per cent since last April to 3,133.

While sales activity is at a level the board expected, Ann-Marie Lurie, the Calgary board’s chief economist, says the steeper pullback in new listings has ensured that supply levels remain low.

“The limited supply choice is causing more buyers to place offers above the list price, contributing to the stronger than expected gains in home prices,” Lurie said in a statement.

-Canadian Press

Tax-Free First Home Savings Account is launching: Here are the basics

Canadians could soon get some assistance when it comes to buying a home when the federal government’s Tax-Free First Home Savings Account (FHSA) launches on April 1.

The program was announced in the 2022 federal budget and is aimed at helping first-time homebuyers jump into Canada’s pricey housing market.

Here’s what you need to know about the savings vehicle that’s set to launch on Saturday.

WHAT’S A FHSA?

The FHSA is a mix between a Registered Retirement Savings Plan (RRSP) and Tax-Free Savings Account (TFSA), but it’s specifically geared towards saving for a house.

Contributions to an account would be tax-deductible and withdrawals to buy a home would be non-taxable.

In order to qualify for an account, an individual must be a Canadian resident between the ages of 18 to 71 and a first-time homebuyer. In some provinces where the legal age to enter a contract is 19, residents will have to wait until that age to open an account.

If you end up becoming a non-resident of Canada after you’ve already opened a FHSA, you can participate normally in contributions; however, you cannot make a withdrawal to buy or build a home while you’re not a Canadian resident.

There will be an $8,000 annual contribution limit, but unused portions of a yearly contribution can be carried forward into the next year. The lifetime FHSA limit is $40,000.

The account can remain open until the 15th anniversary of opening it, until the person turns 71, or the year following a person’s first qualifying withdrawal of their FHSA, whichever comes first.

INVESTMENTS AND WITHDRAWALS

Canadians can have the same kind of investments as a TFSA, in their First Home Savings Account. This means you can hold assets such as publicly traded securities, mutual funds and bonds.

However, when it comes time to withdrawing funds from the FHSA, there are a few requirements that must be met.

The property the funds are being used to purchase has to be in Canada, the taxpayer has to intend on living in that house as their principal residence and they need to have a written agreement to buy or build a qualifying home before Oct. 1 of the year following the withdrawal.

It’s worth noting that anyone who has funds in both a FHSA and the Home Buyers’ Plan wouldn’t be permitted to make withdrawals from both accounts for the same home purchase.

If you end up transferring more than your FHSA contribution room for that year, you will generally have to pay a one per cent tax per month on the highest excess amount in that month.

The federal government’s website said Canadians can remove excess FHSA amounts by: “Making a withdrawal of a designated amount  from your FHSAs (designated withdrawal), or making a direct transfer of a designated amount from your FHSAs to your RRSPs or RRIFs  (designated transfer), or making a taxable withdrawal from your FHSA, or any amounts deemed to be included in income if the account loses its status as an FHSA.”

TAX SEASON

While we are in the middle of tax season, Canadians should take note that contributions to your FHSA during the first 60 days of the year are not deductible on the previous year’s income tax return.

The federal government’s website added that “You also cannot claim a tax deduction for any FHSA contributions that you make after your first qualifying withdrawal.”

https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/first-home-savings-account.html

While contributions to a FHSA are usually deductible, if Canadians are planning to transfer from their RRSP to the housing account, it will not be deductible.

ENOUGH FOR A DOWN PAYMENT?

Tim Cestnick, co-founder and CEO of Our Family Office, said the FHSA was a great idea from the federal government, but he doesn’t know how much it will help the average Canadian buying a home.

“Forty-thousand dollars is not going to be enough to really act as a down payment in most cases,” Cestnick said in a phone interview last August.

“Most of the time you’re going to need to put down 10 per cent and there’s not too many homes that you can buy for $400,000 in Canada right now, it’s certainly in the major cities like Toronto and Vancouver, where it’s going to be tough to save enough for a full down payment.”

However, Cestnick said all first-time homebuyers should think of setting up an account, regardless if they end up using it.

“I think it’s a no brainer for first-time homebuyers to set up the account because it doesn’t hurt you in any way,” Cestnick said.

“You can pull money out tax-free if you buy a home, if you don’t, that money goes into your RRSP and those are both good options.”

-Hilary Punchard, BNN Bloomberg

The Bank of Canada Holds Rates Steady Even As the Fed Promises to Push Higher

As expected, the central bank held the overnight rate at 4.5%, ending, for now, the eight consecutive rate increases over the past year. The Bank is also continuing its policy of quantitative tightening. This is the first pause among major central banks.

Economic growth ground to a halt in the fourth quarter of 2022, lower than the Bank projected. “With consumption, government spending and net exports all increasing, the weaker-than-expected GDP was largely because of a sizeable slowdown in inventory investment.” The surge in interest rates has markedly slowed housing activity. “Restrictive monetary policy continues to weigh on household spending, and business investment has weakened alongside slowing domestic and foreign demand.”

In contrast, the labour market remains very tight. “Employment growth has been surprisingly strong, the unemployment rate remains near historic lows, and job vacancies are elevated.” Wages continue to grow at 4%-to-5%, while productivity has declined.

“Inflation eased to 5.9% in January, reflecting lower price increases for energy, durable goods and some services. Price increases for food and shelter remain high, causing continued hardship for Canadians.” With weak economic growth for the next few quarters, the Bank of Canada expects pressure in product and labour markets to ease. The central bank believes this should moderate wage growth and increase competitive pressures, making it more difficult for businesses to pass on higher costs to consumers.

In sum, the statement suggests the Bank of Canada sees the economy evolving as expected in its January forecasts. “Overall, the latest data remains in line with the Bank’s expectation that CPI inflation will come down to around 3% in the middle of this year,” policymakers said.

However, year-over-year measures of core inflation ticked down to about 5%, and 3-month measures are around 3½%. Both will need to come down further, as will short-term inflation expectations, to return inflation to the 2% target.

Today’s press release says, “Governing Council will continue to assess economic developments and the impact of past interest rate increases and is prepared to increase the policy rate further if needed to return inflation to the 2% target. The Bank remains resolute in its commitment to restoring price stability for Canadians.”

Most economists believe the Bank of Canada will hold the overnight rate at 4.5% for the remainder of this year and begin cutting interest rates in 2024. A few even think that rate cuts will begin late this year. 

In Congressional testimony yesterday and today, Federal Reserve Chair Jerome Powell said that the Fed might need to hike interest rates to higher levels and leave them there longer than the market expects. Today’s news of the Bank of Canada pause triggered a further dip in the Canadian dollar (see charts below). 

Fed officials next meet on March 21-22, when they will update quarterly economic forecasts. In December, they saw rates peaking around 5.1% this year. Investors upped their bets that the Fed could raise interest rates by 50 basis points when it gathers later this month instead of continuing the quarter-point pace from the previous meeting. They also saw the Fed taking rates higher, projecting that the Fed’s policy benchmark will peak at around 5.6% this year. 

Bottom Line

The widening divergence between the Bank of Canada and the Fed will trigger further declines in the Canadian dollar. This, in and of itself, raises the Canadian prices of commodities and imports from the US. This ups the ante for the Bank of Canada.

The Bank is scheduled to make its next announcement on the policy rate on April 12, just days before OSFI announces its next move to tighten mortgage-related regulations on federally supervised financial institutions.

To be sure, the Canadian economy is more interest-rate sensitive than the US.  Nevertheless, as Powell said, “Inflation is coming down, but it’s very high. Some part of the high inflation that we are experiencing is very likely related to a very tight labour market.”

If that is true for the US, it is likely true for Canada. I do not expect any rate cuts in Canada this year, and the jury is still out on whether the peak policy rate this cycle will be 4.5%.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres

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