Cautious consumers cited for lack of Alberta real estate boom
While the pieces appear to be in place for a housing boom in Alberta, new regulations and memories of the last boom are keeping a lid on the market, says a new report.
Don Campbell, senior analyst and founding partner of the Real Estate Investment Network says that while the underlying economics are similar to those in 2006 and 2007 — with low vacancy rates and strong GDP and job growth — several factors are contributing to the market’s current performance.
“On the surface ... Alberta should be experiencing another one of those unsustainable booms,” Campbell said.
“The real difference this time is hidden in the strong forces of today’s market influencers,” he said, referring to a variety of conditions unique to the current market.
Campbell’s analysis notes that many Albertans bought their first homes during the height of the previous boom and may be reluctant to re-enter the market after watching their investments endure double-digit losses in the midst of the 2008 financial crisis. He also says the regional nature of the market — and broader stories that call the Canadian market overvalued — may be contributing to a lack of confidence in real estate in general.
The other factors are financial, with new mortgage rules making qualifying for financing more difficult and the number of new Albertans moving into new jobs, which also hampers a buyer’s ability to secure a mortgage.
Calgary’s MLS market was up 3.7 per cent from 2012 through April 10, according to the Calgary Real Estate Board, with the average sale price up 8.1 per cent, to $451,246. The median price was up 5.9 per cent to $397,000.
Statistics Canada, meanwhile, reported the Calgary area had the second-highest rate of year-over-year growth in new home prices in February, as the New Housing Price Index was up 4.3 per cent. Nationally, prices were up 2.1 per cent, led by Winnipeg, which posted annual price growth of 5.5 per cent.
Ann-Marie Lurie, CREB’s chief economist, said the organization never felt the economy was about to boom.
“In the 2005-2007 period, we had significant growth in both the oil and natural gas sector — economic growth as of late has only been driven by the oil sector,” she said. “While this has helped support growth, there have been some challenges regarding bottlenecks and price discounts.
“We also shouldn’t forget that the natural gas market continues to struggle. Our economic growth is progressing but at a slower pace, and forecasters also estimated that employment growth and net migration would ease this year, two factors pointing towards slower demand growth in housing.
Lurie also said there has been “sufficient choice to prevent any significant shortage in the ... housing market, which was the case in 20062007, causing an unsustainable jump in home prices.”
Lai Sing Louie, regional economist for the Prairies and Territories for Canada Mortgage and Housing Corp., said market conditions in Alberta today are different from the boom.
“Some of the differences include higher household debt as well as more prudent lending conditions today. Also, some of the transactions in that period were investor-driven and we have not experienced that to the same extent today,” he said.
Calgary Chamber of Commerce chief economist Ben Brunnen said the province is seeing the signs of a strong economy.
“I think we’re seeing probably a bit more of a cautious consumer out there. I do think we’ll see some strong real estate activity happening in Calgary but not like in the boom,” Brunnen said.
“I think there continues to be some caution in the market for a number of reasons. While Alberta’s economy is good, the global economy continues to be shaky, especially Europe and the United States. So people don’t have that strong confidence per se that this economic activity is going to be sufficiently robust that they should buy a house.”