Don was recently asked by the Globe & Mail to weight on the current real estate situation in Calgary. Here are his thoughts:
The market is performing exactly as expected as we head to the end of May – the 9 - 10 month mark since the oil price drop from peak. This is significant point in the market where historically reality returns to the market. Some significant points that observers, buyers, and sellers should pay close attention to now are:
- Average prices (on a y vs y basis) still continue to be approximately flat. This is to be expected as those who listed in a panic when oil began to drop (especially in December and January) were refusing to lower their expected prices, even as competition heated up and listings skyrocketed. This has helped to protect the downside of average sale prices, however;
- The number of sales is down significantly as a result of buyers sitting back waiting for 2 key occurrences.
- The first one was for sellers to start getting a little more desperate and move their expected sale prices down dramatically. This desperation has not occurred (except in a small segment of the market, especially luxury).
- The second key that the buyers were looking for was some sense of stability to arise in the oil and gas industry and to date this has not occurred. Buyers have traditionally been more patient than sellers and so the waiting game continues.
- An added component that is protecting the downside of the market, and something that no one is speaking about as part of this market performance, is Calgary’s very low vacancy rates and high rents. A seller, no matter how desperate they may believe they are to sell, still needs an affordable (and more importantly, available) place to move their family to as the majority are NOT leaving the Calgary region. In many case appropriate rentals are not available and not available at an affordable (i.e. lower than their mortgage payment) rent. The housing market is NOT like the stock market where you get in and out – the housing market is just that housing, so the move post-sell comes into play for sellers.
- In the latest figures, (http://www.creb.com/) we are witnessing the reality of c above as NEW listings have dropped significantly (y vs y) and therefore the “panic”
sellers listed early (Dec - Feb) and the rest of the market is just sitting back and looking for clarity. This is proven and has been reflected in the May and April numbers of “Current Listings” which are significantly higher than historic because it reflects those “panic listers” from earlier in the year who have not sold (because they were unwilling to take the big price drop the buyers were hoping for)
- We see the impact of the election campaign in the numbers as well as buyers deciding to wait out the results. This has driven the “Number of sales” down significantly. This is also to be expected because, on top of sellers not willing to make significant price concessions, the election campaign added a lot more “confusion” to the market and as is true in all market conditions “A Confused Mind Prefers To Say No” as it is the safest route. The next 6 months will continue to provide political confusion in the market as the new government sets policy, especially in the important industries of the province. This will not add any confidence to the buyers, thus delaying their entry into the market further.
- We can expect those December and January panic listings to expire (as many are 6 month listing contracts) in June and July so we should also see homes coming back on the market at lower prices – or removed completely.
- The Calgary market is performing exactly as expected (and to our forecast in January). The two largest components in play both can be tagged as “confusion”, namely around:
- When will oil prices find their foundation and at what price will that be? These are the important economic issues that underpin the strong in-migration to Calgary and thus the support of its real estate market.
- What policies and announcements will the new government make in their first 6 months to provide stability and confidence to businesses, citizens and industry? The more clear they get the more that potential buyers can decide when to enter the real estate market and therefore prop up the demand side of the Calgary real estate market. Right now, the confidence is low and the clarity is low post election and therefore buyers continue to sit and wait.
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