The Calgary Real Estate Board released their 2019 forecast a few weeks ago, and in the past, I haven’t been in full alignment with the numbers they’ve put out. Last year, they predicted 0% growth, whereas I saw house prices fall 2% and apartment prices fall 5%. This year, however, I think we’re more in line with the Board’s predictions.
Let’s first take a look at what happened in 2018:
- Detached home sales dropped 15.95% and prices dropped 1.45%.
- Apartment sales dropped 7.24% and prices fell 2.70%.
- Attached home sales dropped 15.43% and prices decreased by 1.49%.
- For the City of Calgary overall, there was a 14.61% drop in sales and a 1.52% decrease in prices. As always, putting too much stock in averages can be dangerous—if your head is in the oven and your feet are in the freezer, your average temperature would be okay, but you’d be dead anyway. Perspective does matter when it comes to analyzing these figures.
This year, as I said, we’re more in alignment with predicted trends. Overall in Calgary, home prices dropped 2.35%, which makes this the fourth consecutive year of price decreases in our city. That constitutes a decline of about 9% since 2014; those who purchased their homes in 2014 will be the most affected by the current market conditions.
Why is this happening? Well, in addition to oil prices and the uncertainty of the political environment, interest rates are a big factor. Not only have interest rates been creeping up, but when the stress test came into effect on January 1 of last year, it was the equivalent of having a 2% increase in interest rates—this really reduces people’s buying power.
What is negatively impacting home prices in 2019?
- The energy sector and the economy are continuing to soften.
- Consumer confidence is down. People aren’t certain about their real estate prospects, and when people aren’t certain, they either fight, flee, or freeze—a lot of people are freezing.
- The number of good-paying jobs continues to decrease.
- The lending market is tightening rules as interest rates continue to rise.
- The housing supply continues to rise, and when that happens, prices decrease.
On the other hand, the increasing population and net migration to Calgary are working in our favor. Many immigrants who come begin by renting for a couple years before buying homes, which contributes to the decreasing vacancy rates over the past year. This creates opportunity for investors: If you can buy for less and your vacancy rates are decreasing, your rates will begin to increase.
There are other opportunities to be had, as well, if you’re looking at moving up or down. Right now, properties—especially detached homes between $350,000 and $450,000—are really hot. We’re even generating multiple offers in some cases; though it may take two or three sometimes, we’re still getting the job done. If you’re someone who owns a home in that hot zone and wants to move up to a higher-priced home, then that market is softer and you can get a better deal.
If you’re looking at moving down, the condominium market is softer, and there are better deals there than ever. The gap that you’re paying is actually smaller; if you remove your personal reservations about selling your house for less and look at your net numbers, you’ll see that there are some pretty significant savings and opportunities that we haven’t seen in Calgary for years.
What threats might present themselves if the 2019 predictions don’t come true?
- Pipelines/energy sector. If major employers move into the area or leave it, that will affect the market.
- Employment. Jobs are the biggest driver of real estate trends.
- Consumer confidence. People’s reservations and optimism definitely affect the market.
- Interest rates/lending markets. We’re expecting interest rates to creep up, but not much, since it’s an election year. Again, rising interest rates do reduce buying power.
- Government. With this year being an election year, there’s some uncertainty in the market. A lot of people may be waiting to see what happens.
While all of these factors are important, they all take a long time to shift. If you need help reaching your real estate goals, don’t hesitate to reach out to us. We’ll help you with your own customized SWOT analysis to help you solve your problems and realize your dreams.