Bumpy Challenges Continued for 2018, But Optimism Remains!
The conditions of the 2018 Calgary Housing Market are expected to remain relatively unchanged in 2018, as the impact of higher lending rates and stricter lending criteria are offset by modest improvements in the economic climate. Recent changes may have prolonged the recovery period in our market, but it is not expected to completely derail the transition.
The path to recovery in Calgary is expected to be bumpy, as the market adjusts to a new normal. We are entering 2018 with elevated supply levels and an environment of rising rates paired with stricter lending criteria. However, the improving economy generated modest job growth and net migration last year, with expectations of further improvements into 2018.
Minimal changes in sales activity will be expected to meet with easing new inventory for some property types, limiting the upward pressure on supply. This should help support more balanced conditions, preventing widespread benchmark price declines.
More balanced market conditions will be led by the attached and detached sectors of the market, while the apartment sector will continue to struggle with excess inventory in 2018. Prices will likely continue to face some downward pressure in the apartment sector, with stabilization not expected until the latter portion of the year.
Housing Market Activity Resale
Following two years of slower activity, 2017 marked a year of transition in the housing market. Calgary moved from an environment of price easing to general stability driven by the detached and attached sectors. This was consistent with a general economic climate that started to stabilize after adjusting to the decline in oil prices. During the transition year, housing sales growth went from strong gains over the first half of the year, as consumer confidence improved due to some pent-up demand returning to the market, to slower sales growth in the second half the year, which was more in line with current economic conditions. Improved consumer confidence encouraged more sales activity, but it also started to translate into rising listings, as many sellers also waited to list their home until market conditions improved. The result was citywide prices that remained comparable to the previous year.
Improving economic conditions in 2018 are expected to support modest demand growth. However, rising interest rates and stricter lending conditions will have some counterbalancing effects on that demand. The net effect is no significant changes to market conditions this year, as the presence of these opposing forces will likely prolong the period of recovery.
We anticipate citywide prices will remain relatively unchanged this year, as sufficient supply levels – combined with rising rates – increased costs and slow wage growth are expected to place limits on price growth. While price trends are expected to vary by product type and price range, full price recovery is not expected to occur in 2018.
The detached sector in Calgary has generally seen fewer price declines compared to the other segments of the market throughout the recession. Demand eased for this product throughout the recession, but it did not experience the same supply pressure from competing new-home construction. This prevented the months of supply from reaching previous highs, unlike other sectors of the market. Sales improved, but most of the growth occurred in the first half of the year. Supply did not keep pace with the early rise in demand in 2017. This resulted in stronger price gains throughout the first portion of the year. However, as supply levels rose in response to improving prices and demand, the pendulum swung the other way. This elevated months of supply and put downward pressure on prices. Despite the dynamics throughout the year, detached benchmark prices averaged $504,867 in 2017, 0.63 per cent higher than last year.
Moving forward, changes in lending criteria and higher rates are likely to have more of an impact on the detached sector. Sales activity is expected to slow by 1.3 per cent, as demand eases from some of the move-up buyers, and some purchasers are pushed into more affordable sectors of the market. However, more significant declines are not expected, as the changes should be mitigated by availability of supply in the lower price ranges, as well as general improvements in the overall economic situation. In 2018, we anticipate seeing further shifts in the distribution of sales, likely impacting average and median prices.
Housing Market Activity Attached
The attached segment of the market has seen the largest rise in sales activity in 2017 in Calgary. Attached sales increased by 8.2 per cent for a total of 4,182 units in 2017. Attached housing has been appealing to those who are looking for a more affordable option than the detached segment in the community they may be considering. This market is now accounting for 22 per cent of all residential sales, compared to the 20 per cent average over the last decade. Semi-detached sales totalled 1,823 units in 2017, which is a six per cent improvement over the activity recorded last year. It was also nearly 10 per cent higher than the 10-year average, and the only segment to see a rise in that metric. The increased popularity of this type of product has also caused more development of this style of home, and new listings also improved. However, the growth in sales outpaced the growth in new supply. This limited upward pressure on inventory levels and caused the market to trend towards more balanced conditions. Annual benchmark price appreciation reached four per cent for a total of $420,600, bringing prices to levels comparable to pre-recession highs. Sales growth for row properties was also exceptionally strong, but prices have not been as resilient in this sector of the market compared to the semi-detached product. Row sales in 2017 totalled 2,359 units, a 10 per cent increase over last year, but still seven per cent below longer term averages. Despite the rise in sales, new listings growth prevented significant reductions in inventory levels. This caused months of supply to remain elevated at 4.4 months. This was an improvement over last year, but this segment continued to favour the buyer, causing further downward pressure on prices. Annual row benchmark prices averaged $299,567 in 2017, three per cent below last year and nine per cent below recent highs.
As supply in this segment of the market falls into more affordable categories, we anticipate further demand shifts to attached properties in 2018. Improving sales, relative to listings, should cause further reductions in inventory levels and generate modest improvements in prices. This is primarily driven by improvements in semidetached prices, while row prices are expected to start to stabilize this year.
Housing Market Activity– Apartments
The impact of the recession was most significantly felt throughout the apartment condominium sector in Calgary. A decline in sales, coupled with rising inventory in the new-home, resale and rental markets, resulted in more supply than demand. Sales activity in 2017 improved by over five per cent over 2016, but the continuing rise in new listings resulted in inventory levels averaging 1,602 units, just below average peak levels of 1,669 units recorded in 2008. The additional supply had clear implications for pricing. The annual benchmark price in 2017 totalled $263,475, four per cent below last year and 12 per cent below annual highs recorded in 2014.
Condominium apartments made up nearly 60 per cent of new multi-family inventory levels this year. The additional supply caused many builders to offer various incentives to entice buyers into new product over resale. Rising interest rates and changes in lending requirements could make this product more attractive to potential purchasers. However, competition from new product will prevent more significant gains in resale market sales. While sales activity may improve and some of the new listing pressure may ease, it will take time for inventory levels to decrease. On this basis, this segment is expected to continue to remain favourable for buyers for most of the year, placing further downward pressure on prices.
*Adopted from the CREB Forecast. For a downloadable version, contact us today! (403) 969-2363.
WHAT DOES THIS MEAN?
The 2018 Calgary housing market is on its way towards upward recovery. The detached and attached home market remains steady but for condominiums, the path to recovery will be an anticipated one. But, have no fear! When you hire a qualified, experienced and professional certified condo specialist at Jesse Davies & Associates, we will curate a custom and targeted marketing campaign and effective pricing strategy to ensure you stand out amongst the high inventory levels. There are buyers out there, they’re just wanting a good deal. Get the most out of your homes potential, and call us today to get started.
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