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January 01, 2019

Real Estate Insider - The year ahead

2018 has been challenging, but improvements seen next year

Mario Toneguzzi

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Looking back at 2018, it hasn’t been an easy year in Calgary from an economic point of view.

The economy is indeed growing but the recovery and rebound from the recession years of 2015 and 2016 continues to be slow and cautious.
So what does that mean for Calgary’s housing market in 2019 and beyond — both new and existing homes.
Let’s first take a look at what’s expected for the overall economy.
The most recent economic outlook by ATB Financial’s Economics & Research Team forecasts economic growth of 2.6 per cent this year, 2.2 per cent in 2019 and 2.1 per cent in 2020 for the province.
While this is good news, it’s also indicative of the slow recovery taking place in Alberta as its gross domestic product rose on an annual basis by 4.9 per cent in 2017.
“Still shaking off the effects of the 2015-16 recession, it has been a long but steady climb higher. However, the pace of growth continues to frustrate many Albertans, particularly those who are struggling in the job market. Employment has risen over the last year, but the rate of improvement has been slow and unsteady,” said the ATB report.
“The global economy has shown resilience, particularly given the heightened trade tensions between the U.S., China and other nations. This growth has been a benefit to Alberta as it has supported global oil prices. However, the healthy state of the global economy cannot be guaranteed — and if trade tensions worsen, a slowdown is almost inevitable.”
Moving into the latter part of 2018, the Alberta economy continued to improve with several key economic indicators higher than they were last year — employment, retail trade and manufacturing sales.
“Nonetheless, growth has not been rapid enough to push the unemployment rate down to pre-recession levels and there are questions about the quality and compensation of the new jobs, especially in the energy sector. Sectors which have taken up the baton of growth include agriculture and agrifoods, tourism, transportation and logistics, and the tech sector,” said ATB.
Of course, the surplus of western Canadian heavy oil, and the resulting low price, presents a challenge, particularly for Alberta. The continuing challenge of access to market has been headline news in the last few months of 2018 and will continue to be heading into 2019.
With that economic context in mind, Canada Mortgage and Housing Corporation issued its Housing Market Outlook for the Calgary region for 2019 and 2020. Here are some of the key highlights:
• MLS sales are forecast to reach 20,600 to 22,100 next year and between 20,900 and 22,600 in 2020. Those numbers are slightly up from the forecast 20,200 to 21,400 sales this year;
• The average MLS sale price is forecast for between $462,300 to $466,500 this year then for 2019 to be between $464,800 and $470, 100 and then in 2020 to be between $469,500 and $475,500;
• The range for single-detached housing starts is 4,000 to 4,500 this year; 4,000 to 4,700 in 2019; and 4,000 to 5,000 in 2020;
• The range for multi-family housing starts is 7,400 to 8,200 this year; 7,100 to 8,100 in 2019; and 7,200 to 8,500 in 2020.
“While economic growth has generated employment gains, full-time employment in Alberta is still recovering from the last oil price shock,” said the CMHC. “Full-time employment has still not returned to the level reached back in 2015.”
The federal agency said the Calgary census metropolitan area is currently facing elevated levels of completed and unabsorbed inventory. As of September, there were 2,087 unsold homeowner and condo units.
“Elevated inventories are largely due to unsold apartment units, which make up half of all inventory in Calgary. Inventory for semi-detached and row units are also elevated, but make up a smaller share of total inventory (14 per cent and 11 per cent, respectively). Single-detached inventories are largely in-line with historical levels,” said the report.
“The number of units that are currently under construction provide insight on potential inventory. In the case of apartments, there were 7,630 units under construction in September 2018, up 32 per cent from last year. Given the current level of inventory and units under construction, it is anticipated that total housing starts in 2019 and 2020 will be similar to production in 2018.”
In the resale housing market, active listings were elevated in the Calgary region for 2018 but were falling as the year came to an end. Still, the level of inventory of homes for sale on the market remained at a high level and sales have been lower due to relatively weaker economic fundamentals in the market, said the CMHC.
“Various factors will push and pull the demand for housing in Calgary in 2019 and 2020. On aggregate, it is anticipated that Calgary’s economy will experience stronger growth in population and employment. This will help support demand and lift MLS sales in 2019 and 2020. However, it will take time for the market to transition to conditions that are more balanced,” explained the CMHC.
James Cuddy, the CMHC’s senior analyst in Calgary, said a resurgence of migration, particularly from interprovincial sources, has increased demand for rental units in the region, resulting in significantly lower vacancy rates and rising rents.
According to the CMHC, the apartment vacancy rate in the Calgary CMA in October decreased for the second consecutive year to 3.9 per cent in 2018 from 6.3 per cent in 2017.
Also, the average two-bedroom rent was $1,272 in October compared with $1,247 in October 2017.                                  
“Supply in the primary rental market continued to post strong gains in 2018, growing by 3.7 per cent,” said the CMHC. “The purpose-built rental apartment universe increased by 1,407 units from 38,160 in October 2017 to 39,567 in October 2018, however demand outpaced supply whereby 2,268 additional units were occupied in October 2018 compared to last year.”

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