More signs of a housing correction in Alberta emerged this week as the real estate market continued to adjust to the price of oil hovering near six-year lows.
The pinch is being felt more noticeably in Calgary than in Edmonton. Calgary is home to many of the oil companies’ head offices, employing large numbers of scientists and engineers as well as the financial services part of the equation. Edmonton is the service hub for Northern Alberta and has a different, more transitory, demographic than white-collar Calgary.
Job cuts and spending cuts by the big oil companies and slowing interprovincial migration to Alberta have taken their toll on home sales and listings; however, prices remain resilient for the time being.
According to the January housing statistics released by the Calgary Real Estate Board (CREB) on Feb. 2, activity has fallen to levels not seen in five years.
“A lack of recovery in oil has many concerned about their employment status and this concern is reflected through the weaker sales activity in Calgary’s January resale figures,” said CREB chief economist Ann-Marie Lurie in a press release.
For Calgary, with the level of sales 39 percent lower than January 2014 and new listings increasing by 37 percent, inventory has doubled. The gain in new listings primarily occurred in the higher price ranges. Worrisome is also the 54 percent increase in inventory from December 2014.
In Edmonton, the picture is not as bad, with listings up roughly 30 percent compared to January last year and sales down just over 25 percent. This has led to inventory being up roughly 17 percent from the same time last year, but spiking up 35 percent from December 2014.
“We are likely seeing the effects of oil prices and a feeling of economic cautiousness amongst some buyers,” Realtors Association of Edmonton president Geneva Tetreault said in a press release on Feb. 3.
While average or benchmark prices don’t tell the full story, Calgary for some time has been one of the hottest housing markets in Canada. Benchmark prices in Calgary remained stable from December to January and went up 7.7 percent from January 2014 to $459,100.
Edmonton’s average all-residential price of $362,400 was almost up 1 percent from December and up 3.75 percent from January 2014.
Generally speaking, Calgary tends to have more higher-priced homes than Edmonton.
“The upper-end market has suffered a little bit more than the average price range market,” said Bill Briggs, former president of the Realtors Association of Edmonton and Alberta Real Estate Association.
Briggs is on the board of directors of the Canadian Real Estate Association and is the broker/owner of a Re/Max franchise in Edmonton.
In his business, 2014 was a record year for commission revenue and, unusually, he didn’t notice the typical December slowdown. But in January, he noted a 15 percent drop in commission production from last January.
“We’re still getting calls, our phones are ringing and people are busy; however, that’s all going to be dependent in the long term,” Briggs said.
“If [oil] prices fall back to the $40 range and stay there for a year, we’re going to have some major shifts in the marketplace in Edmonton and Calgary,” he continued.
“A lot of this is psychological, so even a positive newscast like oil prices going back above $50 is positive news.”
The price of oil staged a bit of a rebound earlier this week, but uncertainty is very high and that feeds into the real estate market.
“Housing decisions will likely continue to be postponed for many consumers until they can see what happens with the economic climate in the spring,” said Lurie in the CREB press release.
More buyers may turn into renters under the circumstances.
“Investors are still in the marketplace in Edmonton buying,” said Briggs.
In a volatile housing market, rental demand typically increases, as people are less willing to make a longer-term commitment and want to avoid heavy upfront costs. The rental market in Edmonton remains strong and investors can get the rents that make sense to them, Briggs explained.
Alberta’s housing market outperformed most other major national housing markets beginning in 2006, but also fell harder during the financial crisis that began in 2008. By comparison, for example, Toronto’s housing market has been on a steady climb since 2006, with the financial crisis looking more like a blip as compared to Alberta’s experience.
As part of its weekly research publication issued last Friday, Jan. 30, the Bank of Montreal projected that Alberta growth will fall to 0.5 percent in 2015 (second lowest after Newfoundland and Labrador) after it outperformed the other provinces in recent years.
“I haven’t seen a situation that I can recall where it’s been quite as dramatic as it’s been now,” said Briggs about the sharp drop in oil prices over the last few months and the challenge facing Alberta’s real estate market. But he doesn’t see a housing bubble in Alberta and therefore doesn’t see prices falling by 15, 20, or 30 percent.
“If it was that overpriced, we’d have noticed a big difference in selling price even this month [January], and we haven’t,” he said. Briggs remains optimistic but also realistic.
For a while, rightly or wrongly, Calgary’s housing market was being lumped in with Toronto’s and Vancouver’s, but that has definitely changed now as Toronto and Vancouver’s real estate markets remain robust.
Edmonton looked to be following on Calgary’s path with major developments starting to be built. It hasn’t seen the boom its bigger provincial neighbour saw, but it also isn’t reeling quite as badly from the oil price plunge presently. Nevertheless the two major cities in Alberta face difficult times in the months ahead with everything depending on the price of oil.
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