By Don R. Campbell
Overall Forecast and Impact of Mortgage Lending Rule Changes
In 2017, if all the current economic conditions continue to prevail, Calgary's real estate market should begin to feel an increase in negative momentum in demand but more measurably in average sale price.
Since the downturn in oil prices and the change of provincial government occurred, Calgary's real estate market prices have not dropped as much as some had expected. This is due to the higher rents and the resiliency of sellers who have been through the inevitable ups and downs of the Calgary market.
However, by piling on recent policy changes (what are called “market influencers” in my book “Secrets of the Canadian Real Estate Cycle”) this confidence will begin to wane. Calgary’s real estate market is especially vulnerable given the addition of the coming provincial carbon tax, no end in sight for low oil prices and the recently implemented changes by the federal government’s mortgage qualification rules.
I was recently on NewsTalk 770's Morning News with Bruce Kenyon to discuss the effect of the mortgage changes on Calgarians. Listen to my segment here.
You can also hear my longer discussion on CBC about the government's belief that we need a "Mommy" to look after us (and mortgage rules) by clicking here.
The new mortgage rules will force many buyers into either staying as renters OR lowering the value of the property they can qualify to purchase. This lowering of price demand will push the average sale price lower more quickly. The other policy changes will keep a cap on the confidence and therefore the demand in the resale market.
Forecast for Calgary's Rental Market
The rental market will be pushed in two directions. Firstly, vacancy rates will continue to move upwards as unemployment rate holds steady and thus out-migration continues. However, the new mortgage rules will keep that upward push on the vacancy rate slower than would economically or cyclically be expected. The number of units in the city’s rental pool has increased and will continue to increase as owners who have not been able to sell their house/condo/townhouse move them into the rental market. In the past, these untrained landlords have rented for below market just to fill the vacancy and solve their financial problem, and as more of these enter the market, the quicker the average rents will decrease.
The other impact that the 2017 rental market will feel will be a growth in demand for newer and/or renovated properties, as renters begin to adjust their expectations and spend their rent money more wisely than they could during boom times.
The largest difference will be felt between areas with easy transit access and those that do not. Values and rents within 800 meters of C-Train stations will be overall more stable than those away from these well serviced areas. The demographics in Calgary are younger than many other cities in the country and therefore transit as well as “villaging” (areas where people can live/work and play) will be in more demand for both rental and purchase than areas way out in the suburbs with no amenities.
Opportunities will arise for those who have a minimum five year window of ownership. Negotiations on price and conditions will begin to lean heavily towards the buyer's side in 2017, especially towards those who can work within the new mortgage rules.
Calgary’s market has been textbook case of how a market responds based on the underlying economics. See the Long Term Real Estate Success Formula above. (The reverse also true: the slowdown in economics doesn’t get felt in the housing market until at least 18 months after it initially hits). However, the brand new mortgage rule changes wild card will throw the market lower, and quicker, than would generally be expected.