The recovery of the Calgary real estate market is still some way off according to a recent report by the city’s real estate board. However, the worst of the downturn appears to be over, and with oil prices rising, economic activity is set to pick up again in 2017. According to the Calgary Real Estate Board, property prices will show minimal growth in some cases, while contracting in others.
Detached and semi-detached home prices are forecasted to barely increase on 2016 levels, while apartments are expected to fall by another 2%.
Economic Recovery Slow to Reach Real Estate
“The transition in the housing market will be a slow process,” said CREB Chief Economist Ann-Marie Lurie. “We are entering the year with high unemployment rates and the possibility that job growth will not occur until the latter portion of 2017. These conditions will continue to weigh on housing demand, but supply is adjusting to weaker sales activity, which will eventually translate into price stability.”
After falling by 3.2% in 2016, prices for detached homes are projected to rise by 0.8% by the end of 2017, while semi-detached homes will reverse a dip of 4.1% last year to rise by 0.5% this year.
That growth, anemic as it is, stands in contrast to the apartment/condominium sector where prices fell by 6% last year and are forecasted to fall another 2% in 2017.
CREB revealed that a total of 18,335 homes are expected to change hands in 2017, which is three per cent more than 2016 levels, but 12% below long-term averages.
Job Growth Must Lead the Way
Rob Park is a native of Calgary and was formally a real estate agent with REMAX Realty Professionals. He left that position last September to become COO of a FinTech company based in the city. Old habits die hard, however, and he still keeps a close eye on developments in the property business.
“Real estate is always a lagging indicator,” he says. “Although the perception of the economy will improve the mental state of Calgarians, and hopefully translate into a more optimistic mindset, I don’t think there will be a big turnaround in real estate until employment in full time, well-paying jobs improves.”
The oil shock of 2014 that stretched right into 2016 precipitated the worst recession in the region since the 1980s. More than 40,000 full-time jobs were lost in the city, many of which were well-paying positions in the energy sector. This had obvious consequences for home buying, and in particular, those homes at the higher end of the market.
“I think the reality of the downturn is that it hollowed out a good chunk of the city’s professional core,” says Park. “The average real estate market fared decently – what I would be watching for is vast improvement in the luxury market, say $1 million- or $1.5-million homes and up. That segment took a beating and is still not as robust as it should be for a city this size.”
Things are even worse for the condo market – a fallout from the property boom at the start of this decade that created a supply glut. Condo sales have plunged more than 40% from early 2014 highs and the average price now stands at $277,217.
A History of Booms and Busts
Having lived in the city his entire life, Park has grown accustomed to these cycles, which seem to repeat every generation or so. There is a mental block by many Calgary residents when it comes to the economy, he says.
“Another factor in the overall downturn was how quickly the city went from boom to bust. I used to call it the money hangover – it was only a matter of months between one of the city’s richest times to one of its most challenging. Lots of people operating in denial, of either the fact their lives had changed, or, expecting this would all be over in a few months and the city would boom again shortly.”
The American Equation
The downturn this time has been long and arduous, but with an unashamedly pro-oil US President now in office, Calgarians have started to wonder if another boom is just around the corner. Trump has already reversed his predecessor’s block on the Keystone XL pipeline, so his election victory has generally been considered as a positive for Canada’s oil patch. Any optimism about what the current administration in Washington may do for Calgary needs to be tempered in Park’s view. Donald Trump and his cabinet are certainly major supporters of the oil industry, but the Canadian oil industry? That’s a question yet to be answered.
“Trump is perceived to be oil friendly, which I think is a mistake,” he says. “He is America friendly – as a result of that he is pro coal and pro crude. I think he does see some benefit in North America supplying its own energy needs; however, he will be focused on making deals that are as good for America as possible…good for American shale producers – not necessarily Canadian oil operations.”