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What you need to know about COVID-19: October 20, 2020
The Calgary housing market is showing a low degree of vulnerability in four areas measured by the Canada Mortgage and Housing Corporation’s (CMHC) Housing Market Assessment (HMA).
The HMA considers four key factors: Overheating; price acceleration; overvaluation, and; overbuilding. As the number of intense and persistent signals of imbalances increases, the degree of vulnerability of the housing market becomes higher.*
According to CMHC, the HMA is not a housing affordability assessment, it is aimed at assessing whether there are risks from the overall housing market that could ultimately affect financial stability.
“Calgary continues to exhibit low levels of evidence of overheating, with the seasonally adjusted sales to new listing ratio (SNLR) of 55 percent being well below the threshold,” says Michael Mak, senior analyst, economics at CMHC. “There continues to be a moderate level of evidence of overbuilding in the Calgary CMA, with the number of completed and unsold (new) ownership units in the second quarter approaching a historic high.”
The inventory level has slowly, very slowly, declined each month since the end of May, when it stood at 2,325 homes. By the end of June, that number was 2,315 and 2,161 at the end of July. At August’s end, inventory was 2,118, comprised of 546 single-family homes, 303 semi-detached, 457 townhomes and 862 apartments.
Here are Mak’s overviews of the HMA’s key factors from the CMHC report.
Under the HMA model, Calgary continues to exhibit low levels of evidence of overheating, with the seasonally adjusted sales to new listing ratio well below the overheating threshold of 85 percent. Compared to the previous HMA, the SNLR has remained relatively flat at 55 percent. In the second quarter of 2020, both new listings and sales significantly fell compared to the previous quarter due to a combination of a weakening economy, as well as pandemic measures that limit resale transaction accessibility and general uncertainty. However, as seasonally adjusted new listings fell slightly more at 31 percent compared to the 30 percent drop in seasonally adjusted sales, the ratio was able to remain relatively flat. While this is a special circumstance, the SNLR continues to be higher than recent lows in 2018, pointing to a strengthening buyers’ market.
There is a low level of evidence of price acceleration in the Calgary CMA, as the HMA maintains its rating from the previous report. Average prices in the Calgary CMA continue to decline as buyers’ market conditions prevail, as well as among weaker sales activity. The MLS average price was $423,311 in the second quarter of 2020, down four percent from the same period in 2019. Seasonally adjusted, average prices were lower by four percent from the first quarter of 2020.
Results from the HMA model continue to show low evidence of overvaluation, as the difference between actual house prices and predicted houses prices from fundamental factors remain below the overvaluation threshold. The recent decline in economic activity is in line with the decline in house prices. Labour income has been decreasing since the fourth quarter of 2019. Calgary continues to be affected by slower population growth, especially among the 25 to 34 age cohort. Although the overall population is still growing, the share of the 25 to 34 age cohort continues to shrink. As they are more likely to be first-time home buyers, this continued change in demographic profile has dampened housing demand.
There continues to be a moderate level of evidence of overbuilding in the Calgary CMA. Completed and unsold ownership units per 10,000 population continue to trend upwards above a critical level in the second quarter of 2020, approaching a historic high recorded in the first quarter of 2001 (when it was approximately 2,500). The unabsorbed inventory of single-detached units continued to increase, reaching 627 at the end of the second quarter of 2020, up nine percent from the same period in 2019. The inventory of unabsorbed semi-detached and row units reached 738 in the recent quarter, while lower than the high of 801 in 2019, continue to trend higher. Together, they make up 59 percent of total unabsorbed inventory in Calgary. As these units tend to be more expensive, they are more likely to be affected by a decrease in employment and higher paying jobs due to competition from lower-price condos.
“The current level of overbuilding is partially driven by recent weakness in the oil and energy markets. The recent oil shock pushed prices lower, leading the energy sector, a major exporter in Calgary, to cut back on growth and current levels of employment,” says Mak. “This has led to a steeper decline in the young working age population of 25- to 34-year-olds, a cohort likely to absorb new home inventory. While oil prices have somewhat recovered, energy companies are still limited by production quotas, limiting any job growth and potentially slowing the pace of absorption of new home inventories.”
* Results are based on data as of the end of June 2020 and market intelligence up to August 2020. To ensure timely information for market participants, the overvaluation framework in this edition relies on preliminary estimates of some of the fundamental drivers of the housing market in the second quarter of 2020. Final calculations and ratings for overvaluation will be presented in the next edition of the HMA as finalized data for these fundamental drivers becomes available. – CMHC
Copyright Postmedia Network Inc., 2020