Booming luxury market pushes Calgary house prices to records

Booming luxury market pushes Calgary house prices to records

Average sale and median prices at unprecedented levels

BY MARIO TONEGUZZI
CALGARY HERALD, JANUARY 2, 2014

CALGARY - A booming luxury market, and tight overall conditions with listings not keeping pace with demand, has pushed Calgary house prices to unprecedented levels.

Average sale and median prices hit all-time records for the city in 2013 for both total MLS transactions and in the single-family home category, according to data released Thursday by the Calgary Real Estate Board.

The average sale price for total MLS reached $456,703 for the year, up 6.54 per cent from 2012, while the single-family average price rose by 7.61 per cent to $517,887.

The median sale price for total MLS was $401,000 and it was $450,000 for single-family homes. The median price rose by 5.53 per cent from the previous year for total MLS and it was a 7.14 per cent hike in the single-family market.

Also, December capped a solid year for the residential real estate market with the highest-ever monthly average sale price at $527,764, eclipsing the previous record of $526,546 set in June 2013.

"Momentum was building from the last quarter of 2012," said Christina Hagerty, a realtor with RE/MAX Realty Professionals in Calgary. "We approached 2013 with low interest rates, one of the lowest unemployment rates in the country and the lowest vacancy rate in the past decade. Employment growth and higher than expected net migration into the city helped support the demand for housing and increased sales and pricing. 2013 was an extremely busy year for us with informed and prepared purchasers.

"People talk about the flood adding to this, but I focus on the amazing ability for a city to rebound in a very short period of time. Something that may have devastated other major centres. I believe that this is largely due to the sense of community and the job market allowing people the ability to rebuild."

The previous records for average sale prices were set in 2012 at $428,649 for total MLS and $481,259 for single-family homes. The previous records for median prices were set in 2007 at $382,000 for total MLS and in both 2007 and 2012 at $420,000 for the single-family market.

Average prices in the city ballooned this year as a result of a strong luxury market that set a record for most transactions ever at $1 million or more.

devastated other major centres. I believe that this is largely due to the sense of community and the job market allowing people the ability to rebuild.”

According to Mike Fotiou, associate broker with First Place Realty, there were 727 luxury home sales in 2013, which was a 33.6 per cent hike from the previous annual peak in 2012. The year was marked by 10 consecutive months of new monthly sales records. Only January and December did not set records in 2013.

Total MLS sales in the city reached 23,489 units in 2013, up 10.78 per cent from the previous year. New listings of 32,153 were up 0.97 per cent but active listings at the end of December were down by 17.80 per cent to 2,235.

"Companies are recruiting professionals across Canada and globally and this has put Calgary on the map as a thriving metropolis of opportunity and a safe place to raise their families," said Hagerty. "With vacancy rates at one per cent and an abundance of job opportunity, there is a confidence in the city. 2014 looks to continue with solid growth fueled by sound fundamentals."

MLS sales and percentage increase from 2012 for different housing categories were: single-family, 16,302, 7.92 per cent; condo apartment, 4,007, 14.45 per cent; condo townhouse, 3,180, 22.40 per cent; and towns, 4,516, 13.81 per cent.

Average sale price and percentage increase from 2012 were: single-family, $517,887, 7.61 per cent; condo apartment, $299,517, 5.17 per cent; condo townhouse, $341,116, 7.73 per cent; and towns, $381,884, 9.55 per cent.

Median price and percentage increase from 2012 were: single-family, $450,000, 7.14 per cent; condo apartment, $261,000, 3.78 per cent; condo townhouse, $306,000, 6.45 per cent; and towns, $355,700, 6.18 per cent.

Scott Bollinger, broker with the ComFree Commonsense Network, said prices in Calgary climbed because of increased sales and listings not keeping pace with the demand.

"Most notably in 2013 we saw rising wages, low interest rates and record in-migration. So it’s not surprising after three to five years of relatively little price growth, and despite the steady employment and the wage growth along with record low interest rates, that prices surged this year," he said.

"Add to that the Alberta and Calgary economies outperformed almost every other region in Canada in 2013 by a wide margin, which had the effect of attracting all of those people. But the interesting thing is that 70 per cent of the net migration to Calgary in particular was international. And the other thing about the migration was that we set a record this year for the growth of the cohort of ages between 25 and 45 and those people, along with the international crowd, are most likely to engage in household formation."

Bollinger said he is surprised that the listings didn’t catch up with the sales. He said the market might expect to see more of a reaction from the listing side early in the new year.

"If we don’t see that increase in listings, I think we’re going to continue to see farily significant price increases," said Bollinger.

In a statement, Ann-Marie Lurie, CREB’s chief economist, said sales growth exceeded expectations in 2013, pushing above long-term trends.

"Two consecutive years of elevated levels of net migration, combined with an improving job outlook and confidence surrounding long-term economic prospects, supported the demand growth," she said.

"In 2014, both sales activity and prices are expected to improve, but not at the same pace recorded this year. While factors influencing demand will support growth in 2014, rising listings and increased competition from the new home sector should alleviate some of the supply pressure in the market."

Those factors, combined with potential increases in long-term lending rates, should take some of the steam off the exceptionally strong price growth recorded in 2013, said Lurie.

KEEP CALM AND BOOM

‘It’s boom time in Alberta’: New home construction at a five-year high (graphic)
By Mario Toneguzzi
Calgary Herald June 10, 2013

CALGARY — New home construction picked up in the Calgary region in May with Alberta’s level at a five-year high.

It’s a sign that the housing market is heating up.

Canada Mortgage and Housing Corp. reported Monday that total starts in the Calgary census metropolitan area reached 1,078 units during the month, which was an increase from 949 in May 2012.

“The trend of total housing starts increased slightly in May, due to strong construction in both the single-detached and multi-family markets,” said Richard Cho, CMHC’s senior market analyst for Calgary.

Multi-family starts rose to 519 in May from 466 a year ago while the single-detached market saw starts jump to 559 from 483 last year.

“While softer energy prices may be moderating overall economic growth this year, it appears that home builders didn’t receive the memo. Judging by the most recent statistics, it’s boom time in Alberta,” said Todd Hirsch, chief economist at ATB Financial.

Builders started construction on 41,438 new homes in Alberta in May — the highest this year and the first time since early 2008 that the figure has risen above the 40,000 mark.

“What’s more, the trend over the last several months clearly suggests that the housing market is heating up,” added Hirsch. “Between May 2012 and May of this year, housing starts are 14.1 per cent higher than they were in the previous 12-month period.

“What’s causing this boom in home construction isn’t any big mystery: population growth. Even if overall economic growth has slowed somewhat, the inflow of people into our province hasn’t.”

The latest Labour Force Survey, released last week, points to a surge in the labour force, which has grown by 59,400, or 2.6 per cent, over the last 12-months.

“Interprovincial and international migration to Alberta is driving some of the demand for new homes. High wages, low unemployment and a younger population are also contributing factors,” said Hirsch.

“The strong housing starts number ... is supported by another figure from Friday’s employment report — the number of construction jobs is also rising. Even if jobs in the energy patch and manufacturing have eased back a bit, employment in construction continues to provide some great work opportunities.”

Robert Kavcic, senior economist with BMO Capital Markets, said multi-unit housing starts in Canada came storming back in May “after falling precipitously through the winter months.”

“Still, the six-month trend in overall Canadian housing starts sits very close to demographic demand, further hinting at a soft landing,” he said.

Total Canadian housing starts rose by 13.8 per cent in May to 200,178 annualized units, the strongest pace in six months, added Kavcic.

The multi-unit segment rose by 22 per cent.

He said Alberta posted a modest gain, and activity in the province now sits at the highest level in five years.

“With the six-month moving average now more in line with the rate of household formation, May’s sharp jump in the pace of new home construction is unlikely to be sustained,” said Dina Ignjatovic, economist with TD Economics, about the national picture. “Indeed, slower price growth in the housing market could lead to lower homebuilding activity in the coming quarters. Moreover, the overbuilding that has taken place over the last 10 years could lead to new home construction falling below this demographic need for a period of time. This should, however, help to prevent further overbuilding and a consequential sharp correction in the housing market.

“Overall, we expect new home starts to gradually trend down over the next 12-18 months, suggesting that the Canadian economy will not be able to count on residential investment to prop up growth over that time frame.”

For Graphs:
http://www.calgaryherald.com/business/Calgary+region+housing+starts+trend+upwards/8503723/story.html

A TEXTBOOK MARKET?

What happened to the expected Alberta real estate boom?
Market influencers tempering demand
By Mario Toneguzzi
Calgary Herald April 11, 2013

CALGARY — Several ‘market influencers’ have kept the reins on the expected Alberta real estate boom, says a new report on the housing market.

The report, by Don Campbell, senior analyst and founding partner of the Real Estate Investment Network, said debate is raging about why the market isn’t booming like it did in 2006 and 2007 when the job market and population in the province were growing at the same rates as they are today.

“The real difference this time is hidden in the strong forces of today’s market influencers. It is very true that the market drivers are all in place to support a large growth in housing purchase demand and price increases, in fact it is a textbook market for a boom,” said Campbell.

“In Alberta, the GDP and job growth have driven very strong population growth which has led to low vacancy rates not experienced in this province for many years. Street rents are jumping due to the rental supply/demand inequality. So, on the surface that means Alberta should be experiencing another one of those unsustainable booms. Well why isn’t it? And is there one still in the works?”

He said certain wild cards can throw a market off its prescribed cycle for periods of time.

“So, despite all of the market drivers being in place to push the Alberta real estate market into its next boom cycle the market continues to underperform its economics. Why? Simply, there are market influencers in play and that is why we are not yet seeing the expected rush into the market demand,” he said.

They include the once-bitten, twice-shy attitude equating into a local lack of confidence in the market. Many Albertans made their first home purchases during the previous boom. They were hit hard when the financial crash came. This has tempered enthusiasm for the market now.

Tighter mortgage qualification rules have also tempered market demand.

Overall consumer confidence in real estate is taking a hit with many recent reports and headlines on the state of the Canadian market saying it may be over-priced or overvalued.

A large portion of Alberta population growth is from two key demographics who are less likely to buy a house immediately — immigrants and ‘Echo-boomers’.

According to the Calgary Real Estate Board, total MLS sales year-to-date in the city until April 10 were 5,798 transactions, up 3.72 per cent compared with the same period last year.

The average sale price this year has risen by 8.08 per cent to $451,246 while the median price is up by 5.92 per cent to $397,000.

Ann-Marie Lurie, CREB’s chief economist, said the organization never felt the economy was about to boom, based on several factors.

“The first consideration is the economy,” she said. “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. While this has helped support growth, there have been some challenges regarding bottlenecks and price discounts which has impacted employment growth prospects in the province. 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.

“The next consideration is fundamentals in the housing market. Inventory levels were generally more elevated in the resale market, and it has taken some time to absorb some of the excess in the market. While this has occurred primarily in the single-family market, it has only started to spillover into the surrounding areas, the condominium market, and the new home market. When considering all the options available to consumers, there was sufficient choice to prevent any significant shortage in the entire housing market, which was the case in 2006-2007, causing a unsustainable jump in home prices.”

She said she is not surprised that the market didn’t boom, given the economic backdrop and current supply in the market.

Lai Sing Louie, regional economist for the Prairies and Territories for Canada Mortgage and Housing Corp., said market conditions in Alberta’s housing markets 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.

The underlying economics and Market Drivers state that the market should be on fire, just like it was back in 2006 and 2007 – that is unless you begin to factor in these influencers, said Campbell.

“Let us make sure we are analyzing today’s markets with today’s conditions and not compare them to previous boom-bust cycles. Each cycle has its own influencers that either heat up or cool down a market and this current cycle from 2006 until today is the perfect proof of that,” he said.

“As long as the drivers are strong, the market is structurally strong, no matter what the influencers are doing. The concern should arise when the drivers are weak and the influencers are pushing the market upwards with no support. That is not what is happening in Alberta right now; in fact, the drivers remain strong despite the headlines.”

Ben Brunnen, chief economist with the Calgary Chamber of Commerce, said the province is definitely seeing all of the signs of strong economic and potentially housing growth.

“Net inter-provincial migration, population growth is up. Unemployment is low and GDP growth is relatively high,” said Brunnen. “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.

“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.”

BOOM BOOM POW

Alberta economy continuing its 'impressive boom'
By Mario Toneguzzi
Calgary Herald March 19, 2013

CALGARY — Any dark clouds that are currently hanging over Alberta will clear by 2014, paving the way for strong business and consumer activity, says a report by RBC Economics.

The bank’s latest Provincial Outlook, released Tuesday, said the province’s economy will continue its “impressive boom” through 2013, after leading the country’s economic growth in 2012, despite facing challenges.

RBC forecasts a provincial real GDP growth rate of three per cent due to strong crude oil production as well as high levels of capital investment, employment and population growth. This will be second in the country behind the 5.1 per cent growth expected in Newfoundland & Labrador.

RBC is predicting Alberta will lead the country in economic growth of 4.2 per cent in 2014.

In December, RBC forecast growth of 3.5 per cent this year for the province. The forecast for 2014 has remained the same.

“Even though the province recently announced a $2 billion budget deficit, Alberta is unquestionably in the midst of an impressive economic boom – particularly with capital investment fuelling manufacturing and wholesalers’ sales. Attractive employment opportunities are also bringing new migrants to the province, boosting population growth and in turn, consumer spending,” said Craig Wright, senior vice-president and chief economist at RBC. “As the economy continues to thrive across the majority of key industries, Alberta will remain at the top-end of Canada’s economic growth rankings this year.”

Economic growth in the province in 2011 was 5.1 per cent followed by 3.5 per cent last year.

Todd Hirsch, senior economist with ATB Financial, said Alberta’s economy is moderating somewhat.

“So I think we will see probably a slower year for growth than what we saw in 2011 or 2012,” said Hirsch. “A lot of that of course prompted by those softer energy prices and maybe a little bit of pullback by the provincial government. But I think we’re still going to see kind of a nice moderate healthy level of growth of around 2.5 to three per cent.

“Going forward beyond that it gets trickier and we don’t really do forecasts beyond 2013 but I would still see 2014 as a pretty good year ... It’s not going to feel quite like the boom years of 2006, 2007 either. We’re just going to have nice healthy moderate growth.”

RBC said there are a few weak spots in Alberta’s economic outlook. Investment intentions in the oil and gas sector are essentially flat for 2013. RBC said Alberta’s energy developers’ plans are being weighed down by rapidly rising energy production in the U.S., pipeline bottlenecks and the ‘bitumen bubble’, all of which contributed to lower crude oil prices in Canada relative to global benchmarks late in 2012.

“Weaker than expected oil prices put a multibillion dollar hole in Alberta government’s revenues, and led to a 2013 provincial budget that detailed renewed public sector spending restraint,” said Wright. “Still, any pullback in capital spending will be short-lived as pipeline issues are addressed and crude oil price relationships normalize.”

RBC trimmed its real GDP growth forecast for Canada to 1.8 per cent through 2013, following softer-than-expected growth in 2012. For 2014, it is forecasting 2.9 per cent growth across the country. In December, it forecast growth of 2.4 per cent this year and 2.8 per cent in 2014.

“After boasting a relatively strong economic performance over the past several years, Canada’s economy hit a speed bump in late 2012,” said Wright. “That said, financial conditions continue to support growth. As confidence recovers, business spending should accelerate, albeit at a less rapid pace than we saw in the early days of expansion.”

BEST IN CANADA

Calgary luxury home market sales growth best in Canada
Sotheby’s International Realty Canada predicts trend to continue
By Mario Toneguzzi
Calgary Herald January 11, 2013

CALGARY — Calgary led the country in 2012 in sales growth for the luxury home market, according to firm Sotheby’s International Realty Canada.

Ross McCredie, president and chief executive of the real estate company, said Calgary is the “best performing market in Canada right now in terms of growth.”

“The trend has been upward and we don’t see any sign of that changing for awhile,” said McCredie. “There’s more and more investment coming into Alberta. More and more people are moving there. You’ve got a range of jobs. It’s not just simply oil and gas companies that are investing there.

“In the rest of the country, there’s definitely a trend going west and Alberta is probably leading that trend in terms of companies investing in key offices across Canada as well as foreign companies coming in as well.”

He predicted double-digit sales growth for Calgary’s luxury home market this year which will outstrip the performance of other major centres across the country.

“Calgary is really starting to become a city of high net worth people and investment coming into the country,” said McCredie.

In its Top-Tier Real Estate Report, a biannual study highlighting market trends for the most expensive homes in Canada’s largest urban centres, Sotheby’s said the market for luxury homes is expected to gain momentum and “to generate increasing demand from both local and international buyers given strong economic fundamentals, historically low interest rates and a national unemployment rate that has hit a record four-year low.”

In Calgary, compared with the same July to December period in 2011, listings over $1 million were up 38 per cent and sales of real estate in the same category were up 21 per cent in the second half of 2012.

“The average days on market for homes over a million dollars increased slightly to 66 days and the percentage of properties selling over asking price dropped slightly to five per cent,” said the report. “High-end neighbourhoods like Elbow Park and Glencoe were among those to see strong demand.”

According to the Calgary Real Estate Board, the city experienced a record for MLS sales over $1 million each in 2012 with 544 transactions, eclipsing the previous record of 458 in the housing boom of 2007. In 2011, there were 446 luxury home sales.

In 2012, the luxury home market had 508 single-family home sales and 36 condo sales compared with 420 and 26 respectively in 2011.

CREB said 1,533 homes were listed for sale in Calgary over $1 million in 2012 — 1,408 single-family and 125 condo. In 2011, there were 1,352 luxury home listings — 1,253 single-family and 99 condo.

In 2007, the luxury home market had 1,242 listings for the year, comprised of 1,159 single-family homes and 83 condos.

“We saw such an increase in activity in the last two quarters of 2012,” said realtor Christina Hagerty, who recently joined Sotheby’s in Calgary. “The momentum was building up all last year and it continued over the holiday season. This should be a good indicator of the year ahead. With the dwindling supply, and the strong pulse on the street that ‘Calgary is where you need to be,’ properties priced at market, are selling. Buyers are not wasting any time. They have done their research and are ready to make an offer when the right one hits the market.”