Alberta housing affordability could be tested

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It’s a weird world where a 10-per-cent year-over-year price increase for a single-family home is considered tame. However, this is Calgary at this moment.

Calgary housing is affordable when compared to many other major Canadian cities, where prices have shot far out of the financial reach of many during the pandemic. Here, it’s more possible to purchase a home without an intergenerational transfer of wealth – an increasingly normal part of the first-time buyers’ experience that’s at once exacerbating the problem of high prices, and needed more than ever.

But that Alberta affordability advantage is likely to be tested by rising oil prices and an improving economy.

The province’s largest city has suffered a series of economic setbacks since 2015, contributing to it being a relative bargain for detached and semi-detached houses when contrasted with frenzied markets in Toronto or Vancouver. That comparison now applies even to Ottawa, Montreal or smaller centres such as Kamloops – all more-recent additions to the high-priced Canadian cities list. They are now in the club in which prices increased well above 20 per cent between 2020 and 2021.

Those sharp year-over-year increases soon result in painfully high prices. A benchmark detached or semi-detached home in Calgary was $494,000 at the end of 2021, according to the Calgary Real Estate Board, or CREB. In contrast, the benchmark price is double that in Victoria.

That affordability may be helping to attract people to the province, and has kept some people from moving away. In Edmonton, year-over-year price growth for a house is strong but is also still only (ha!) 6.3 per cent. This relative affordability also exists in Saskatoon and Regina.

The wild card for what happens in 2022 for housing prices is what is always the wild card for the city, and province – the price of oil and natural gas. Oil is comfortably above US$80 a barrel – a level almost guaranteed to stir some activity and new projects. The city has also been bolstered by optimism about the potential for growth in the technology and clean-technology sectors.

The questions now are whether it all results in many new jobs and new people, and some medium-term confidence about the city’s economic viability.

“There’s a lot of positive things happening in Calgary. That could outweigh the impact of the higher interest rates, especially earlier on in the year,“ CREB chief economist Ann-Marie Lurie said.

It’s unlikely to be a return to the massive employment levels of past booms. But Ms. Lurie said the city could see “a return of some of the higher-paid jobs,” and “there is a level of confidence that comes” with higher oil prices. In its 2022 forecast, CREB said price growth for Calgary detached and semi-detached homes is likely to be about 5 per cent in 2022.

It’s a world away from early 2020, when there was little in the way of confidence in the city. The province had been in a five-year economic slump. Then oil prices plummeted in the first months of the pandemic. That’s why it was a bit of a head-scratcher when the housing market heated up in late 2020 and early 2021.

But it turned out the same pandemic factors that were making houses with a decent backyard in demand across the country were also present here: record-low interest rates, the need to work from home, less money spent on travel and going out, the monied wanting to invest, and a pent-up desire for space – both indoors and outdoors.

Those factors have led to a run-up in prices the past two years, the likes of which Canada has never seen before. In that time, the price of a home in Canada is up 43 per cent.

The Bank of Canada controversially held off on an interest rate hike last week, a decision which will allow the country’s housing market to continue to run hot. There is still more demand for detached or semi-detached homes than there is supply. Royal Bank of Canada predicted last week the market will cool as interest rates rise, but will still stay strong in 2022. “A gradual easing in demand-supply conditions will take some pressure off prices.”

However, higher energy prices are likely to be the norm for at least this year. In Alberta, there will be more jobs and money, and likely more people coming to the province. It’s far from being a trend yet, but Alberta’s interprovincial migration turned positive in the third quarter of 2021 after five consecutive quarters of net outflow. Immigrant arrivals returned to levels not seen since 2019.

Even in the city’s downtown, where high vacancy rates have been the main story since 2015, there are signs of life. Colliers reported this month that the fourth quarter of last year “proved to be somewhat of a turning point for Calgary’s downtown office market.” Apartment-style condos, which saw consecutive annual price declines from 2015 to 2020, might see a continuation of 2021′s “modest price growth” this year, according to the CREB 2022 forecast.

This year in Calgary, and in other Alberta cities, growth could be driven by actual economic activity. That hasn’t been the main driver of the housing market in the past two years.

There is still good reason to be worried about a surging housing market, a host of economic unknowns coming out of the Omicron wave, and the high levels of Canadian household debt. Interest rates will increase through this year to cool the market. But the heat coming off a reinvigorated Alberta economy in 2022 could still take the housing market here to new highs.

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