6 reasons Calgary real estate hasn't collapsed

Calgary real estate has had more than its share of detractors lately. Some are hoping for a dramatic fall, others hope it just survives.

The truth, however, lies in six factors that provide a much clearer picture on the health of the market. Frankly, it isn’t pretty, but it sure isn’t a disaster. In fact, when looking at past oil cycles versus real estate markets, the Calgary real estate market was performing exactly as expected at the end of May – nine to 12 months after the price of oil price dropped from its peak.

Give the recent release of market numbers for May 2015 for the Calgary real estate market, here are six significant points that observers, buyers and sellers should pay attention to:

1. Price stubbornness

Average sale prices (year-over-year) are still flat. This is to be expected. Why? Because those who listed in a panic when oil began to drop (especially in December and January), have been refusing to lower their expected prices. They weren’t willing to budge even when a willing buyer came along. In fact, they even held their prices as competition heated up and number of active listings skyrocketed. This stubbornness has so far helped to protect the downside of average sale prices.

2. Buyer patience

The number of sales is down significantly from the year before, as buyers have sat back waiting for two key occurrences. The first is for sellers to get a little more desperate, and therefore dramatically lower their expected sale prices. This desperation has yet to occur, except in a small segment of the market, especially luxury. The second occurrence buyers are looking for is stability in the oil and gas industry; to date this hasn’t occurred. Buyers have traditionally been more patient than sellers, and so the waiting game continues, and sales should continue to be lower than last year even in the traditionally busy summer season.

3. Low vacancy rates

Another component that is protecting the downside of the Calgary real estate market, and one most are ignoring, is the impact of Calgary’s low vacancy rates and high rents on the resale market. Sellers, no matter how desperate, still need an affordable and available place to move their family to. The majority of sellers are not leaving the Calgary region – they just want to reduce their exposure to the housing market. What’s holding some back from selling quickly is that appropriate rentals are not available. The housing market is not like the stock market where you get in and out. The housing market is just that – housing – so the move post-sell comes into play for sellers.

4. New listings drop

We are witnessing the reality of the three above components. New listings have dropped significantly, an indication that the panic sellers listed early (December to February), and the rest of the market is just sitting back and looking for clarity. This, combined with buyers sitting on the sidelines, are reflected in the May and April numbers of “current listings,” which are significantly higher than historic levels because they reflect two key facts: panic listers are continuing their price stubbornness; and there's a lack of rental accommodations.

5. Listings to begin to expire and reappear

We can expect those December and January panic listings to begin to expire (as many are six month listing contracts) in June and July. This will lead to what later in the year will seem like a large increase in “new listings,” as many of these properties are re-priced and re-listed. The re-listing moment is also the trigger for lower average sale prices. So, watch for the reappearance of these properties as an indicator of future lower average sale prices for the Calgary real estate market as a whole.

6. Provincial election results

We are also witnessing the reluctance buyers entering the market after the NDP election victory. A whole new government sets a whole new tone – eventually. The election campaign and the result have thrown a wrench into the system, and the “number of sales” shows it. This is also to be expected because, on top of sellers not willing to make significant price concessions, the election campaign added more confusion to the market. As is true in all market conditions, a confused mind prefers to say no. The next six months will continue to be filled with political confusion as the new government sets policy, especially in important industries. This confusion will not boost buyer confidence, thus further delaying their entry into the market.

WHAT TO WATCH FOR

Oil price instability
When will oil prices find their foundation, and at what level? Price and time are the important economic issues that underpin the strong in-migration to Alberta, which supports a strong and vital Calgary real estate market. Right now, confusion exists.

The first six months of NDP government
Everyone is looking for clarity on what policies and announcements the new government will make in its first six months. The more clear the government gets, the less influence rumour-mongers will have on the confidence of Albertans. When confidence increases, potential buyers can decide when to enter the Calgary real estate market and therefore prop up the demand side. Post-election confidence is low, and therefore buyers continue to sit and wait.

Potential strategic investor opportunity in Wards 7, 8, 9 and 11
There is potential opportunity for strategic investors in the Calgary real estate market. The proposed secondary suite bylaws for Wards 7, 8, 9 and 11 could be a catalyst to boost sales. Properties in these zones that fit the criteria for addition of secondary suites will resurge in demand, as rental income allows buyers to afford homes in these wards. It will also assist to relieve pressure on the vacancy rate in the city, which will have a ripple effect on resale housing.